Kazakhstan: CAREC Transport Corridor I (Zhambyl …. Capulong, Senior Project Officer (Transport),...

Completion Report

Project Number: 41121-033 Loan Number: 2562 September 2016

Kazakhstan: CAREC Transport Corridor I (Zhambyl

Oblast Section) [Western Europe–Western People's

Republic of China International Transit Corridor]

Investment Program (Tranche 2) This document is being disclosed to the public in accordance with ADB’s Public Communications Policy 2011.

CURRENCY EQUIVALENTS

Currency Unit – tenge (T)

At Appraisal At Project Completion (as of 15 September 2009) (as of 22 October 2015)

T1.00 = $0.006628 $0.003611 $1.00 = T150.865 T276.930

ABBREVIATIONS ADB – Asian Development Bank CAREC – Central Asia Regional Economic Cooperation CLG – community liaison group COR – Committee of Roads CSC – construction supervision consultant CSRN – consultant services recruitment notice EARF – environmental assessment and review framework EIA – environmental impact assessment EIRR – economic internal rate of return EMP – environmental management plan GDP – gross domestic product ICB – international competitive bidding IDB – Islamic Development bank IFB – invitation for bids IRI – international roughness index JICA – Japan International Cooperation Agency JSC – joint stock company km – kilometer LARF – land acquisition and resettlement framework LARP – land acquisition and resettlement plan MFF – multitranche financing facility MID – Ministry of Investment and Development MOF – Ministry of Finance MOTC – Ministry of Transport and Communications NCB – national competitive bidding PMC – project management consultant PPMS – project performance management system PRC – People’s Republic of China Q – quarter vpd – vehicles per day

GLOSSARY

CAREC Transport Corridor 1

– Western Europe–Western PRC International Transit Corridor running from Khorgos at the border with the PRC, through Almaty and Shymkent, to the western border with the Russian Federation

Facility – Multitranche financing facility provided by ADB to the borrower for purposes of financing projects under the investment program

Investment Program

– Central Asia Regional Economic Cooperation Transport Corridor I (Zhambyl Oblast Section) [Western Europe–Western PRC International Transit Corridor] Investment Program, financed by ADB, IDB, and JICA

Oblast – An administrative unit of the borrower Raion – An administrative subdivision of the oblast Project 2 – The combined scope of ADB and IDB loans Tranche 2 – The scope under ADB loan proceeds alone

NOTES

(i) The fiscal year (FY) of the government and its agencies ends on 31 December. (ii) In this report, "$" refers to US dollars.

Vice-President W. Zhang, Operations 1 Director General S. O’Sullivan, Central and West Asia Department (CWRD) Director X. Yang, Transport and Communications Division, CWRD Country Director A. Chyngysheva, Officer in Charge, Kazakhstan Resident Mission,

CWRD

Team leader O. Samukhin, Transport Specialist, CWRD Team members N. Bustamante, Senior Operations Assistant, CWRD

M. Capulong, Senior Project Officer (Transport), CWRD A. Chakenova, Project Officer, CWRD K. Sakamoto, Transport Economist, CWRD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

BASIC DATA i

MAP v

I. PROJECT DESCRIPTION 1

II. EVALUATION OF DESIGN AND IMPLEMENTATION 2

A. Relevance of Design and Formulation 2

B. Project Outputs 3

C. Project Costs 4

D. Disbursements 5

E. Project Schedule 5

F. Implementation Arrangements 6

G. Conditions and Covenants 6

H. Consultant Recruitment and Procurement 7

I. Performance of Consultants and Contractors 7

J. Performance of the Borrower and the Executing Agency 8

K. Performance of the Asian Development Bank 9

III. EVALUATION OF PERFORMANCE 9

A. Relevance 9

B. Effectiveness in Achieving Outcome 10

C. Efficiency in Achieving Outcome and Outputs 10

D. Preliminary Assessment of Sustainability 10

E. Impact 11

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 14

A. Overall Assessment 14

B. Lessons 14

C. Recommendations 15

APPENDIXES 1. Design and Monitoring Framework (ADB’s Tranche 2 Project) 16

2. Summary of the Multitranche Financing Facility 17

3. Summary Detailed Engineering Design 18

4. Project Contract Packages 19

5. Project Cost and Financing Plan 20

6. Disbursement of ADB Loan Proceeds 21

7. Project Implementation Schedule 22

8. Chronology of Major Events 23

9. Project Organization Structure at Appraisal (ADB Section) 25

10. Status of Compliance with Loan Covenants 27

11. Economic Reevaluation 35

12. Project Overall Assessment 41

BASIC DATA

A. Loan Identification 1. Country 2. Loan Number 3. Project Title 4. Borrower 5. Executing Agency 6. Amount of ADB Loan 7. Project Completion Report Number

Kazakhstan 2562 CAREC Transport Corridor I (Zhambyl Oblast Section) [Western Europe–Western People's Republic of China International Transit Corridor] Investment Program (Tranche 2) Republic of Kazakhstan Ministry of Investments and Development $187,000,000 1596

B. Loan Data 1. Appraisal Mission – Date Started – Date Completed 2. Loan Negotiations – Date Started – Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness – In Loan Agreement – Actual – Number of Extensions 6. Closing Date – In Loan Agreement – Actual – Number of Extensions 7. Terms of Loan – Interest Rate – Commitment Charges – Maturity – Grace Period

20 February 2009 27 February 2009 28 September 2009 29 September 2009 7 October 2009 3 December 2009 60 days after the date of the Loan Agreement 13 April 2010 2 30 June 2015 30 June 2015 Financial Closure: 22 October 2015 0 Sum of the London interbank offered rate and 0.60% per annum as provided by Section 3.02 of the Loan Regulations, less a credit of 0.40% per annum as provided by Section 3.03 of the Loan Regulations 0.15% per annum 20 years 5 years

ii

8. Disbursements

a. Dates Initial Disbursement

18 August 2010

Final Disbursement 22 October 2015

Time Interval 62.20 months

Effective Date

13 April 2010 Original Closing Date

30 June 2015 Time Interval 62.60 months

b. Amount ($ million)

Category Original

Allocation

Last Revised

Allocation Amount

Canceled

Net Amount

Available Amount

Disbursed Undisbursed

Balancea

1.Works 166.00 183.79 0.00 183.79 181.83 1.96 2.Consulting Services 4.00 3.21 0.00 3.21 2.83 0.38 3.Unallocated 17.00 0.00 0.00 0.00 0.00 0.00 Total 187.00 187.00 0.00 187.00 184.66 2.34

a This amount was canceled on the loan closing date of 22 October 2015.

C. Project Data

1. Project Cost ($ million)

Cost Appraisal Estimatea Actual

Foreign Exchange Cost (Project 2) 415.00 408.96 Total 415.00 408.96

Foreign Exchange Cost (ADB’s Tranche 2) 220.00 218.65 Total 220.00 218.65

a The project cost was not split by foreign exchange and local currency at appraisal.

2. Financing Plan ($ million)

Cost Appraisal Estimate Actual

Implementation Costs (Project 2) ADB Financed 187.00 184.66 IDB Financed 170.00 170.00 Borrower Financed 58.00 54.30

Total 415.00 408.96

Implementation Costs (ADB’s Tranche 2)

ADB Financed 187.00 184.66 Borrower Financed 33.00 33.99 Total 220.00 218.65 ADB = Asian Development Bank, IDB = Islamic Development Bank.

3. Cost Breakdown by Project Component ($ million)

Component (Project 2, 136 km) Appraisal Estimate Actual

A. Base Costs 1. Civil Works (CW)

ADB CW1: Km 310.5–358.6 (48 km) 110.00 125.94 ADB CW2: Km 358.6–389.4 (31 km) 74.00 80.06 ADB CW3: Road operation facilities 11.00 9.42 IDB CW: Km 536–593 (57 km) 167.00 184.44 Subtotal Civil Works 362.00 399.86

2. Consulting Services ADB Construction Supervision 5.00 3.22 IDB Project Management 3.00 2.35

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IDB Construction Supervision 7.00 3.52 Subtotal Consulting Services 15.00 9.09 Total Base Cost 377.00 408.96

B. Contingencya 38.00 0.00 Total 415.00 408.96

Component (ADB’s Tranche 2, 79 km) Appraisal Estimate Actual

A. Base Costs 1. Civil Works

ADB CW1: Km 310.5–358.6 (48 km) 110.00 125.94 ADB CW2: Km 358.6–389.4 (31 km) 74.00 80.06 ADB CW3: Road operation facilities 11.00 9.42 Subtotal Civil Works 195.00 215.42

2. Construction Supervision Consultant 5.00 3.22 Total Base Cost 200.00 218.65

B. Contingencya 20.00 0.00 Total 220.00 218.65

ADB = Asian Development Bank, CW = civil works, IDB = Islamic Development Bank, km = kilometer. a

Contingency was computed at 10% of base costs at appraisal: ADB = $18 million, IDB = $15 million, and Government = $5 million.

4. Project Schedule

Item Appraisal Estimate Actual

Civil Works ADB Km 310.5–358.6 (48 km) Invitation for Bids

a October 2009 December 2009

Contract Award Date February 2010 May 2010 Completion Date December 2012 June 2013 ADB Km 358.6–389.4 (31 km) Invitation for Bids

a October 2009 December 2009

Contract Award Date February 2010 May 2010 Completion Date December 2012 December 2012 ADB Road operation facilities Invitation for Bids

a October 2009 September 2010

Contract Award Date February 2010 July 2011 Completion Date December 2012 June 2015

b

IDB Km 536–593 (57 km) Invitation for Bids

a 2009 2009

Contract Award Date November 2009 April 2010 Completion Date February 2013 January 2013 Consulting Services ADB Construction Supervision Recruitment Notice

a October 2009 November 2009

Contract Award Date February 2010 November 2010 Completion of Services December 2012 June 2015 IDB Project Management Recruitment Notice

a N/A N/A

Contract Award Date N/A January 2010 Completion of Services N/A January 2013 IDB Construction Supervision Recruitment Notice

a N/A N/A

Contract Award Date June 2009 February 2010 Completion of Services February 2013 February 2013

ADB = Asian Development Bank, IDB = Islamic Development Bank Km = kilometer, q = quarter. a Advertisement of the invitation for bids or consultant services recruitment notice.

b Contracts were extended beyond the project implementation period, with financing from the state budget.

iv

5. Project Performance Report Ratings

Implementation Period

Ratings

Development Objectives

Implementation Progress

From 7 October 2009a to 31 December 2010 Satisfactory Satisfactory

From 1 January 2011b to 31 December 2011 On track

From 1 January 2012 to 31 December 2012 On track From 1 January 2013 to 31 December 2013 On track From 1 January 2014 to 31 December 2014 On track From 1 January 2015 to 31 December 2015 On track

N/A = not applicable. a

The loan was approved on 7 October 2009 and the loan agreement was signed on 3 December 2009. The loan was declared effective on 13 April 2010, and the account was financially closed on 22 October 2015.

b From 1 January 2011, the project performance rating system was replaced with eOperations project performance rating system.

D. Data on Asian Development Bank Missions

Name of Missiona

Date No. of

Persons No. of

Person-Days Specialization of Members

Consultation 20‒27 February 2009 4 32 a, c, r, w Consultation 21‒30 April 2009 2 20 a, w Consultation 6‒14 June 2009 4 36 a, d, w, y Inception 2‒13 February 2010 4 44 b, e, o, t Review 1 2‒10 June 2010 3 27 b, e, t Review 2 27 September‒5 October

2010 2 16 b, t

Safeguards Review 1 7‒13 June 2011 3 21 j, l, x Consultation 30 June‒01 July 2011 1 2 d Review 3 13‒19 July 2011 4 28 a, i, p, u Mid-term Safeguards (Environment) Review 6‒13 August 2011 1

8 n

Mid-term Social Safeguards Review 6‒26 August 2011 2 42 m, u Special Loan Administration 4‒11 October 2011 5 40 b, g, p(2), u Consultation 17 October 2011 1 1 d Review 4 4‒19 October 2011 1 16 g Safeguards Review 2 16‒27 January 2012 1 12 n Review 5 9‒16 February 2012 6 48 a, f, i, p(2), u Review 6 23 April‒4 May 2012 6 72 a, f, n, m, g, u Review 7 25 September‒8 October

2012 8 104 a, n, m, g(2),

p, u, w Review 8 3‒12 April 2013 5 50 a, g(2), p, u Review 9 3‒11 June 2013 3 27 a, p, u Social Safeguards Consultation 15‒19 July 2013 1 5 k Social Safeguards Consultation 6‒7 September 2013 1 2 k Review 10 21‒30 October 2013 5 50 g, h, k, p, q Special Project Administration Mission 5‒7 March 2014 4 12 n, h, k, q Review 11 29 September‒4 October

2014 5 30 h, d, g, p, q

Review 12 2‒9 March 2015 5 40 h, g, p, q, v Review 13 25‒30 May 2015 5 30 h, m, n, p, q Review 14 15–22 October 2015 6 48 p, g(2), h, q, s Project Completion Review 25–28 April 2016 3 10 g, p, q

a = principal transport specialist; b = senior transport specialist; c = senior transport economist; d = director; e = country director; f = senior advisor; g = transport specialist; h = senior public private partnership specialist; i = young professional (transport); j = lead safeguards specialist; k = principal social development specialist (safeguards); l = senior social development specialist; m = social development specialist (safeguards); n = environment specialist; o = senior programs officer; p = senior project officer; q = associate project officer (infrastructure); r = program analyst; s = associate project analyst; t = senior operations analyst; u = operations analyst; v = associate operation analyst; w = senior operations assistant; x = operations assistant; y = resettlement consultant. a

Missions were combined for other Kazakhstan projects.

I. PROJECT DESCRIPTION

1. The Central Asia Regional Economic Cooperation (CAREC) Transport Corridor I (Zhambyl Oblast) [Western Europe–Western People's Republic of China (PRC) International Transit Corridor] Investment Program, Project 2 aimed to contribute in developing an efficient transport system in Zhambyl Oblast through travel time savings, reduced transport costs, and a lower road accident rate.1 This would in turn boost international trade and regional cooperation to sustain Kazakhstan’s economic development. To realize these objectives, the project built 79 kilometers (km) of road sections and four road maintenance depots in Zhambyl Oblast during the project implementation period (13 April 2010–30 June 2015).The design and monitoring framework of the project is in Appendix 1. 2. The Asian Development Bank (ADB) approved a loan of $187 million on 7 October 2009 to finance the 79 km of road sections and the four depots. Through a parallel cofinancing arrangement, the Islamic Development Bank (IDB) provided a loan of $170 million on 8 February 2009 to finance a 57 km road section. The Ministry of Transport and Communications (MOTC)2 was the executing agency of the project at appraisal; the Committee of Roads (COR) under the MOTC was the implementing agency. 3. The project was the second under the CAREC Transport Corridor 1 (Zhambyl Oblast Sections) [Western Europe–Western PRC International Transit Corridor] Investment Program, covering 470 km. ADB teamed up with the Japan International Cooperation Agency (JICA) and IDB to finance this investment program.3 The financing was in response to a request from the Government of Kazakhstan for assistance from international financial institutions to finance part of its first priority investment program on the road network along the corridor linking Western Europe and western PRC (CAREC Corridor 1). This corridor covers about 2,715 km of roads from the border crossing point Khorgos through Almaty and Shymkent to the Russian Federation. ADB implemented four projects from 2009 to 2014 under the multitranche financing facility (MFF). The second project under the MFF was implemented through the parallel cofinancing arrangement with IDB, without operational coordination between the two development partners. For the third project, however, ADB administered the JICA-financed section under an accelerated cofinancing framework agreement. The summary of the MFF is in Appendix 2.

1 ADB. 2009. Periodic Financing Request Report for MFF0024-KAZ: CAREC Transport Corridor 1 (Zhambyl Oblast

Section) [Western People’s Republic of China International Transit Corridor] Investment Program, Tranche 2. Manila.

2 On 6 August 2014, the newly established Ministry of Investment and Development (MID) absorbed the functions of

the MOTC, while the COR continued to function as the executing agency under the MID. 3 ADB. 2008. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche

Financing Facility and Administration of Loan to the Republic of Kazakhstan for CAREC Transport Corridor 1 (Zhambyl Oblast Section) [Western Europe–Western People’s Republic of China International Transit Corridor] Investment Program. Manila. To finance part of the investment program, ADB approved the multitranche financing facility (MFF)

on 12 November 2008, in an amount not exceeding $700 million. The loan approved for this project is

the second tranche of the MFF. The loan was declared effective on 13 April 2010 and was closed on 30 June 2015. In parallel, the IDB loan became effective on 16 January 2010 and was closed on 12 November 2013.

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II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

4. The project’s original design was relevant at appraisal. It was consistent with the government’s first priority investment program on the road network along CAREC Corridor 1, which was defined in the medium-term Road Development Program, 2006–2012.4 The road development program was part of the government’s Transport Strategy, 2006–20155 to address core problems of the transport sector.6 The project was also aligned with the CAREC program, which emphasizes regional cooperation in the areas of transport, energy, and trade facilitation. The project road was along CAREC Corridor 1, one of the six corridors included in the CAREC Transport and Trade Facilitation Strategy,7 endorsed by the CAREC members in 2007. 5. The project preparation was adequate. The Zhambyl Oblast Roads Department of MOTC commissioned Kazdorproekt LLP for the design preparation of the road. Kazdorproekt also designed the maintenance depots in 2006 and incorporated further required revisions in the design of facilities in 2011–2012 to address the change of site locations in Akyrtobe and Otar. The road construction design, which was based on engineering road surveys conducted in May and June 2008, complied with the country’s road construction requirements. The state examination agency Gosexpertisa reviewed the designs, which were approved by the Agency on Construction Affairs in 2009. 6. Technical due diligence was carried out through consultations during ADB missions (fact-finding, project consultation, and safeguards missions) with various stakeholders, including the government, MOTC, COR, IDB, local government authorities, and communities along the proposed project roads. ADB financed consultants to prepare the required safeguard reports and update the economic analysis of the road sections. 7. At completion, the project design is substantially the same. It remains relevant as the project continues to be consistent with the (i) revised Transport Sector Program, 2010–2014,8 which aimed to develop an efficient transport network, integrated into the international transport system; (ii) Kazakhstan Infrastructure Development Plan, 2014–2020,9 which aims to develop the transport infrastructure and its integration in the global transport system; (iii) the ADB country partnership strategy, 10 2012–2016, which supports modernizing the transport and logistics systems of Kazakhstan; and (iv) the newly approved CAREC Transport and Trade Facilitation Strategy 2020, 11 which emphasizes a more integrated approach to improving transport and logistics infrastructure, and facilitating trade and transport. 4 Ministry of Transport and Communications. 2006. Road Development Program for 2006–2012. Astana.

5 Decree of the President of the Republic of Kazakhstan. 2006. Transport Sector Strategy of the Republic of

Kazakhstan up to 2015. Astana. 6 The core transport problems included poor road network coverage, poor quality of road assets, impassable roads

during winter months, weak institutional and management capacity, road maintenance financing gaps, road safety issues, and poor traffic operations information system.

7 CAREC. 2007. CAREC Transport and Trade Facilitation Strategy. Manila.

8 The government road development plan, 2006–2012 was revised as the Transport Sector Program, 2010–2014,

which was approved in July 2010. 9 In 2013, Kazakhstan approved a large-scale infrastructure development plan for 2014–2020, which was partially

developed with World Bank’s assistance. 10

ADB. 2012. Country Partnership Strategy: Kazakhstan, 2012–2016. Manila. 11

ADB. 2014. CAREC Transport and Trade Facilitation Strategy 2020. Manila. All 10 CAREC countries (including Kazakhstan) endorsed this strategy at the 12th CAREC Ministerial Conference, held in Astana, Kazakhstan, in October 2013.

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B. Project Outputs

8. The civil works at the two road sections totaling 79 km were completed by June 2013 within the budget and meeting technical specifications, as designed at appraisal. Unanticipated developments and requirements led to minor variations in the design. The summary of the engineering design is in the Appendix 3. The taking-over certificates were issued to the road construction contractors after substantial completion of work.12 The performance certificates will be issued to the contractors after the engineer and the state working committee accept the quality of the completed roads as evaluated against the technical specifications at the end of the defects notification period, which was completed on 31 July 2016. National contractors built and repaired four maintenance depots. One of the four depots was completed within the project implementation period. Completion of the remaining three maintenance depots will be funded by the government, which has already allocated sufficient funds for completion of the Akyrtobe and Korday maintenance depots. Summary of works packages is provided below:

(i) Road section 1 (48.1 km). The existing road was planned to be upgraded to a four-lane cement concrete road. In 2010, about 20 km of the road along the border between Kazakhstan and the Kyrgyz Republic was found to be entirely on the Kyrgyz side. Accordingly, the road was realigned about 200 meters to the north to be fully within Kazakhstan. A new road prism had to be constructed in a swampy area, which increased the project cost. Further, the temporary diversion road (154 km) via Chu had to be repaired within the contract. Additional works delayed contract implementation by 10 months. Two contract variations—one for $16.4 million, the other for $3.95 million—were prepared to address the additional works. Two smaller contract variations were also needed. The total contract cost increase from the contract variations was 25% of the original contract value, while the total price adjustment was 20% of the original contract value (Appendix 4).

(ii) Road section 2 (30.8 km). The existing road was upgraded to the four-lane cement concrete road. Six contract variations (relocation of communication cables, additional road safety facilities, additional cattle underpass crossings, and replacement of unsuitable soils) costing 8% of the total contract amount were implemented on time to provide more benefits to road users and communities along the project road. The total price adjustment was 42%13 of the original contract value (Appendix 4).

(iii) Maintenance depots work. Four maintenance depots were planned for construction during the project. The civil works were procured through national competitive building with 18-month contract periods. Two civil works contracts, each including two maintenance depots, were signed on 2 August 2011. Works in Merke started in 2011, while works at three other deport started in 2012. All depots experienced construction delays caused by various factors, and only one depot was completed within the project implementation period. The depot in Merke was completed by 15 July 2014. The facility in Akyrtobe, designed in 2006,

12

Taking-over certificates were issued to Kazakhdorstroy LLP for one section (Km 358.6 to Km 389.4) on 17 January 2013 and to KCC E&C Co LTD for another section (Km 310.5 to Km 358.6) on 1 August 2013.

13 The contract was priced in Kazakhstan tenge, which over the contract implementation period was stable vis-à-vis the United States dollar. Prices of all construction materials increased substantially after inception of the MFF. The biggest increases in 2012 were in fuel (126%) and crushed stones (60%) compared with their base prices in 2010. Given their weight coefficients (0.27 for fuel, 0.25 for crushed stones), those two components significantly contributed to the price escalation. All price indexes used for calculation of the price adjustment were based on data of the Statistics Agency of Kazakhstan.

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had to be relocated because of higher underground water levels at the original site. By the loan closing date, this facility was only 39% complete. After the loan closing date, construction of the depot was financed from the government budget. All outstanding works and installation of the maintenance equipment are expected to be completed in the fourth quarter (Q4) of 2016. The start of construction in Korday was pushed back by the delay of the construction permit issuance to the contractor by the state regulator. By the loan closing date, the depot was 84% completed. Outstanding works, which are fully financed by the government budget, include completing of gas and electricity utility works, full installation of the maintenance equipment, and some landscaping works. All works in the depot are scheduled to be completed in Q4 2016. The maintenance depot in Otar was not completed within the project period. The original design of the facility was prepared in 2006, but part of the land plot allocated for the facility became unavailable. This required a shift of the project site and redesign of the facility, delaying construction. Later, the contractor encountered cash flow problems, which resulted in the termination of the contract. By the contract termination date, the facility was 63% complete. The residual works were rebid, but did not attract any qualified contractors because of the low value of the outstanding works. Works at the Otar depot are on hold. The COR will revise the cost estimate, and the residual works will be financed by the state budget.

(iv) Maintenance depots operations. As of July 2016, the Merke maintenance depot was fully operational to carry out all maintenance works on the road sections under both the Merke and Akyrtobe depots areas of responsibility. The works completion rate exceeded 90% in the Korday deport, which was essentially operational to carry out all allocated works under the Korday and Otar depots areas of responsibility. Part of the winter maintenance operations around Korday pass was implemented by the Otar depot, located in old facilities.

C. Project Costs

9. At appraisal, the total project cost of the ADB-financed road sections, four road maintenance depots, and construction supervision consulting services was estimated at $220 million, including $195 million (88.64%) for civil works, $5 million (2.27%) for consulting services, and $20 million (9.09%) for contingency funds. Of this amount, ADB provided $187 million under the second tranche of the MFF (85%), while the Government of Kazakhstan financed $33 million (15%). 10. Within the parallel cofinancing arrangement totaling $195 million to build the 57 km road section and finance project management and construction supervision consulting services, IDB provided $170 million (87.18%), while the Government of Kazakhstan provided counterpart funds of $25 million (12.82%). The project cost and financing plan is in Appendix 5. 11. During implementation of the ADB project, the contingency funds were reallocated to the civil works category to finance contract variations and price adjustment, as provided in the contracts. Several minor technical variations accounted for 18% of the original amount of works contracts, while the price escalation of the construction materials and resources reached 28% of the original amount of the works contracts (Appendix 4).14

14

These percentages are the weighted average percentage increase of all contract variations and price escalation to the total accepted contract amount of all works contracts.

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12. At completion, the project cost was adequate to finance the works for 79 km road sections and the services of a construction supervision consultant. The total project cost was $218.65 million, which was 1% less than the cost at appraisal. As the project outputs were delivered within the budget, minor contract variations and price escalations did not have a negative effect on the project’s economic and financial rates of return. D. Disbursements

13. The disbursement of ADB loan proceeds followed ADB’s Loan Disbursement Handbook (2015, as amended from time to time). The direct payment procedure was applied for works and consulting services contracts. An imprest account was not required. 14. At appraisal, MOTC established a financial unit within the COR in June 2009 with qualified staff assigned to facilitate prompt disbursements in coordination with the Ministry of Finance (MOF) and ADB. The uploading of withdrawal applications through ADB eStar system that started in August 2011 accelerated processing of withdrawal applications. Giving the implementing agency access to the ADB Loan and Grant Financial Information Services (LFIS) website assisted in monitoring the disbursement achievement against projections. 15. The loan disbursements were not delayed. The first disbursement was in August 2010, a month after the first contract signing, and progressed smoothly until the loan account was closed. The project performance was rated satisfactory at the start of the project, and maintained the on track project performance rating until completion. 16. The ADB loan was closed on 30 June 2015. The loan account was closed on 22 October 2015, with total disbursements of $184.66 million (99% of net amount). Loan savings of $2.34 million were canceled at closing. The annual disbursement of the ADB loan proceeds is in Appendix 6. The IDB loan was fully used and closed on 12 November 2013. E. Project Schedule

17. At appraisal, the works contracts were expected to be awarded by February 2010 and completed by December 2012 with the 730-day defects liability period. During implementation, the works contracts for the two lots (Km 310.5–358.6 and Km 358.6–389.4) were awarded in May 2010 and signed in July 2010 and June 2010, respectively. The contractors started to mobilize in August 2010 and the works began in September 2010. The works for the Km 310.5–358.6 road section were substantially completed on 18 June 2013, with the defect notification period up to June 2015. The works for the Km 358.6–389.4 road section was substantially completed on 29 December 2012, with defect notification period ending in December 2014. Because of slower-than-expected rectification of defects by the contractors, COR subsequently extended the defect notification period for both sections until 31 July 2016. 18. The contracts for the four depots were awarded in July 2011 and were expected to be completed in 18 months. However, the works were prolonged because of the delayed mobilization of contractors, relocation of depot sites in Otar and Akyrtobe, delayed construction permit issuance in Korday, and limited financial capacity of one of the contractors. The works at Merke depot were completed in July 2014, within project implementation period, while works at Korday and Akyrtobe depots will be completed in Q4 2016, with financing from the Government of Kazakhstan budget. The works at Otar depot were put on hold. The remaining works will be reevaluated for the new competitive bidding and will be financed by the national budget. The overall project implementation schedule is in Appendix 7 and a chronology of major events

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is in Appendix 8. Although the completion of civil works was delayed for a year, the total project cost did not exceed the cost at appraisal. F. Implementation Arrangements

19. MOTC was the executing agency at appraisal; the COR was its implementing agency. The COR’s deputy chairman was the project director who was assisted by (i) selected COR staff members with expertise in engineering, finance, law, and procurement; (ii) the Zhambyl Oblast Road Department, representing the COR in the field sites to ensure smooth project implementation; (iii) the Zhambyl Zhol road laboratories to monitor laboratory test results related to the road construction; (iv) the project management consultant SAI Consulting Engineers Pvt Ltd, which was engaged under the first project of the investment program to manage the project; (v) the construction supervision consultant DOHWA, which was engaged under this project to administer contracts and supervise the progress in two road sections and four maintenance depots. 20. Since its establishment in early 2013, JSC KazAvtoZhol was involved in project implementation. Upon instructions of the COR chairman, JSC KazAvtoZhol provided technical support services to the COR and monitored safeguards compliance with the Zhambyl Zhol road laboratory. The government reorganization on 6 August 2014 replaced MOTC with the newly established Ministry of Investment and Development (MID),15 which absorbed the functions of the MOTC. These institutional changes did not affect the implementation arrangements at appraisal, as the COR remained the implementing agency under MID16 until completion of the project. Appendix 9 shows the institutional arrangement for project implementation. G. Conditions and Covenants

21. The project complied with all major covenants required by the loan agreement. The government ensured that (i) the implementation took place as agreed at appraisal; (ii) required counterpart funds were provided properly; (iii) the project roads were rehabilitated in a timely fashion, in accordance with required technical specifications; (iv) preventive measures to ensure health and safety were taken during civil works; (v) adverse environmental impacts were minimized by implementing all mitigation measures stipulated in the environmental management plans (EMPs); (vi) land acquisition and resettlement were conducted in conformity with ADB policies and requirements, as stated in the land acquisition and resettlement framework (LARF) and land acquisition and resettlement plan (LARP), and monitoring was conducted accordingly; and (vii) project accounts were audited annually, with reports of acceptable quality submitted to ADB as required. Appendix 10 shows the compliance status of the major loan covenants. 22. The loan became effective 4 months after ADB’s approval, an improvement compared with the first tranche of the investment program. The loan closed by the target date without any extensions.

15

Decree of the President of Kazakhstan No. 875. 2014. Reform of the Public Administration System of the Republic of Kazakhstan. Astana. MID was one of the five new ministries.

16 As advised by the Office of the General Counsel on 16 September 2014, the loan agreement did not need to be formally amended as the definition of MOTC includes any successor thereto and MID appears to be the successor of MOTC.

7

H. Consultant Recruitment and Procurement

23. The project contract packages (Appendix 4) were procured as planned at appraisal. ADB approved advance contracting to start procurement of works and consultant recruitment before loan approval. The advance contracting notice was posted in October 2009, followed by the consulting services recruitment notice in November 2009 and invitation for bids in December 2009. 24. The construction supervision consultant (CSC) was recruited using the quality- and cost-based selection method with the standard quality–cost ratio of 80:20 in line with ADB’s Guidelines on the Use of Consultants (2013, as amended from time to time). The project team ensured that the terms of reference of the consultant included a design review task and the reporting requirements, as indicated in the loan covenants. Despite the advance contracting activities, the contract was awarded in November 2010—12 months after issuing the advance invitation for consultant recruitment notice and 7 months after loan effectiveness. The delay was caused by the prolonged process of consultant recruitment involving five submission levels, coupled with (i) the process of replacing the resigned team leader of project management consultant (PMC) who was assisting the COR in all aspects of project management; (ii) limited experience of the COR staff with the recruitment process; (iii) a delay in issuing the request for proposal, as the expressions of interest had to be reevaluated to include all firms that submitted their expressions of interest by mail and online; and (iv) a delay in finalizing the technical evaluation because of its poor quality, which required resubmissions. With this delay, ADB and the COR agreed to appoint a representative from Zhambyl Oblast COR as the project engineer until the CSC could be mobilized to ensure timely issuance of the notice-to-commence to the works contractors. 25. The procurement of works followed ADB’s Procurement Guidelines (2015, as amended from time to time). Two works contracts for the road sections were procured using international competitive bidding (ICB) among the prequalified bidders. Two more contract packages for construction of maintenance depots were procured using national competitive bidding. ADB’s prior review procedures were followed. The contracts incorporated relevant sections of ADB’s Anticorruption Policy (1998, as amended to date) and the Safeguards Policy Statement (2009), road safety features, and loan covenants. The works contracts for the road sections were awarded in May 2010 and the road works contractors received notice to proceed on 17 September, 5 months after the loan effectiveness. The works contracts for the maintenance depots were awarded in July 2011. I. Performance of Consultants and Contractors

26. Consultants. The overall performance of the CSC was partially satisfactory. The consultant carried out the key tasks indicated in the terms of reference, including (i) reviewing the detailed design; (ii) administering three civil works contracts; (iii) controlling the contractor’s work quality; (iv) ensuring timely completion of works; (v) monitoring EMP and LARP implementation; (vi) monitoring traffic safety during implementation; and (vii) preparing the required reports, such as monthly and quarterly progress reports, biannual environmental monitoring report, biannual social monitoring report, works completion report, project performance monitoring report, and traffic management plan. The COR, PMC, and ADB missions systematically criticized the CSC’s performance. The COR’s key concerns were the overall poor administration of the contract, weak back office support, insufficient staffing and poor qualifications of field consultants, low quality of reporting on safeguards issues, and slow response to environmental and safeguards issues.

8

27. Civil works contractors for road sections. The overall performance of the civil work contractors for road works was satisfactory. Both contractors experienced startup delays, but later were able to improve performance. The COR expressed initial concerns with the performance of KCC E&C Co, the contractor for one road section (Km 310.5–358.6). However, the contractor improved its performance and achieved the required project targets. The performance of the contractor for the second road section (Km 358.6–389.4) was consistently satisfactory. 28. Contractors for maintenance depots. The overall performance of the civil works contractors for the maintenance depots was partially satisfactory. Both contractors failed to deliver facilities within the project implementation period. Kulager Construction Company completed the works and procurement of equipment at the Merke maintenance depot. However, the contractor was unable to complete the facility in Akyrtobe on time mostly because of technical issues outside of its full control, such as (i) the relocation of the project site because of high groundwater and (ii) the COR’s inability to identify and prepare the new project site for construction. The second company Axioma Service Contract Company failed to deliver both facilities. The contractor, which was financially solvent at the beginning of the works, encountered cash flow problems and could not fully finance the required works. Residual works at the Otar maintenance depot had to be rebid, but no bids were received because of the low volume of the works. This made completion of the facility within the project implementation period impossible. The contractor completed 82% of a second depot in Korday within the project implementation period. Outstanding works are expected to be completed in Q4 2016 with direct financing from the national budget. Although the contractors’ performance is rated partially satisfactory, the employer was also responsible for delays in the maintenance depot works. Three of four sites were cleared for construction with significant delays because of insufficient project planning and design review, which resulted in the relocation of facilities and delayed the issuance of the construction permit to one of the contractors. J. Performance of the Borrower and the Executing Agency

29. The performance of the borrower (the Government of Kazakhstan represented by the MOF), the executing agency (MOTC, now MID), and the implementing agency (COR), including the PMC, was satisfactory. The change of the executing agency from MOTC to MID in August 2014 did not affect project implementation arrangements, as the COR remained the implementing agency under MID’s guidance until project completion. MOF, MOTC and MID, and the COR complied with all loan covenants during project implementation, including ensuring that counterpart financing was adequate and available as required. 30. The COR implemented the project following ADB’s guidelines and policies on safeguards, anticorruption measures, financial management, disbursements, procurement of works, and recruitment of consultants. With its previous experience implementing an ADB-financed project (tranche 1 of the investment program) in parallel with the projects of other international financial institutions along CAREC Corridor 1, the COR was able to adequately manage the project. The well-established day-to-day communication with the ADB project team facilitated effective implementation, while also enhancing the COR’s project management capacity. During the implementation of tranches 1 and 2, ADB addressed knowledge and capacity constraints of the COR and the PMC in land acquisition and resettlement and safeguards issues. Technical assistance for mainstreaming land acquisition and resettlement in

9

Central and West Asia17 and technical assistance for improving environmental safeguards18 helped improve the COR’s understanding of ADB policy and enhanced its capacity to manage safeguard complaints. K. Performance of the Asian Development Bank

31. ADB’s performance was rated satisfactory.19 At appraisal, ADB collaborated with the MOF and MOTC on strengthening the readiness of the project through preparation of due diligence reports on safeguards and economic analysis. During project implementation, ADB provided substantial and timely support to MOTC (later MID) and COR by (i) providing guidance in resolving technical or safeguards implementation issues; (ii) promptly responding to their requests to reallocate loan proceeds, which resulted in full utilization of the loan proceeds; (iii) quickly reviewing contract variations to avoid delays in works progress; (iv) promptly uploading withdrawal applications through eStar for faster disbursements; (v) extending the loan closing date at the government’s request; and (vi) coaching their staff on ADB guidelines on procurement, consultant recruitment, project administration, contract administration, disclosure, and disbursements, as requested. 32. ADB monitored implementation progress and the resolution of issues through missions, progress reports, and videoconferences and teleconferences. ADB fielded 22 review missions (including midterm, special project administration reviews, and safeguards) and carried out site visits with Zhambyl Oblast COR officials. In general, the communication and coordination among ADB, MID, and COR was smooth and effective. 33. The project was implemented with parallel cofinancing from IDB. During the project, ADB and IDB did not coordinate their operations. According to the project collaborative arrangement among ADB, IDB, and JICA, signed during MFF preparation,20 IDB followed ADB’s social and environmental safeguards policy, but implemented its road section under its own procurement guidelines. IDB mobilized its own PMC, MinConsult (Malaysia) and the SCS Dar-Alhandasah (Lebanon), to support the project implementation. IDB intended to use the expertise of the PMC to develop the capacity of the executing agency. This was partially achieved because of the heavy engagement of the PMC in the day-to-day supervision of works and some misalignment between responsibilities of the PMC staff and the counterpart staff of the executing agency. Overall, the PMC closely coordinated its work with the executing agency, which allowed successful completion of all works on time and within the budget.

III. EVALUATION OF PERFORMANCE

A. Relevance

34. The project is rated relevant. The project, part of the investment program to improve CAREC Corridor 1, addresses the underlying transport problems including poor road network connectivity, poor quality of existing road assets, and road safety issues. The project objective

17

ADB. 2009. Mainstreaming Land Acquisition and Resettlement Safeguards in the Central and West Asia Region.

Manila. 18

ADB. 2010. Improving the Implementation of Environmental Safeguards in Central and West Asia. Manila. 19

ADB’s Kazakhstan Resident Mission actively assisted staff from headquarters in preparing, administering, and supervising the project.

20 Memorandum of Understanding on Collaborative Cofinancing between Ministry of Transport and Communications and Asian Development Bank, Islamic Development Bank, and Japan International Cooperation Agency. October 2008.

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of contributing to the development of an efficient transport system in Zhambyl Oblast, improving transport connectivity in Zhambyl Oblast, and boosting international trade and regional cooperation among neighboring countries was aligned with (i) the government’s transport sector strategies, which prioritized improvement in the national road network; (ii) ADB’s country partnership strategies for Kazakhstan; and (iii) the CAREC Transport and Trade Facilitation Strategy 2020. In response to increased requirements for border security after establishment of the Eurasian Economic Union among Belarus, Kazakhstan, and the Russian Federation in 2010, a 20 km section of road was realigned to avoid border crossing to Kyrgyz Republic and to create a transit corridor entirely within Kazakhstan territory. The project was well designed and implemented. The government has a strong sense of ownership of the project as the COR commissioned the project design, monitored project implementation, inspected the project roads during the defects notification period. JSC KazAvtoZhol, a new national agency for road maintenance and operations, will take over the operations and maintenance after completion of the defects notification period. B. Effectiveness in Achieving Outcome

35. The project is rated effective in achieving its outcomes as designed at appraisal. The 79 km of all-weather roads with reduced roughness and significantly improved road safety provide time travel savings, safe travel, and comfortable conditions for passengers and commercial travelers. Travel time from Otar to southern Kazakhstan decreased from 10 hours to 6 hours, the project target. The reduction in transit time and vehicle operating costs stimulated trade and transport along the corridor. Average annual daily traffic on the Merke–Kulan road section increased to 8,000 vehicles per day (vpd), exceeding the target of 7,000 vpd. At the same time, after completion of the project, traffic volumes on the Blagoveschenka–Kulan section doubled compared with 2009 and reached 4,000 vpd. Traffic on this section is expected to increase further after completion of the eastbound side of the road between Blagoveschenka and Otar. 21 Maintenance depots will improve winter maintenance response time, increase overall quality of road maintenance and extend service life of the constructed roads sections. C. Efficiency in Achieving Outcome and Outputs

36. The project is rated efficient because it achieved the key outputs as initially designed, within budget and on schedule. The project remained economically viable at completion. The economic internal rate of return (EIRR) was recalculated based on revised traffic demand, costs, and parameter values (e.g., value of time). The reevaluated EIRR of 14.8% at completion was above ADB’s threshold of 12%, but below the EIRR of 16.4% at appraisal because of lower forecasts for the average annual daily traffic growth beyond 2016. The traffic forecast was lowered to account for the sharp slowdown of GDP growth in 2014–2015 and the expected slow recovery of Kazakhstan and regional economy, primarily caused by slower economic growth in the PRC and the drop in mineral prices. Details on the economic reevaluation are in the Appendix 11. D. Preliminary Assessment of Sustainability

37. The project is rated likely sustainable. Sustainability of the road rehabilitation depends on (i) the quality of design and construction; (ii) enforcement of vehicle and axle load regulations;

21

Four-lane road prism and two westbound lanes of the road between Otar and Blagoveschenka were constructed within CAREC Transport Corridor 1 (Zhambyl Oblast Section) Investment Program–Tranche 1 and were open for traffic in 2015. Construction of the eastbound lanes, financed by the national budget, is expected to be completed in 2016.

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and (iii) appropriate financial, organizational, and operational arrangements for road maintenance. All three components were sufficiently well addressed at the national road management and project level. The constructed road was designed to meet the maximum transport engineering requirements of the road users. The road is designed for an axle load of 13 tons, while most heavy cargo vehicles carry loads up to 10 tons per axle.22 MID’s Committee of Transport implemented efficient enforcement mechanism to prevent operations of overweight vehicles on the Kazakhstan roads. In exceptional cases, oversized and overweight indivisible cargo is allowed, but the axle loads of the vehicles for transport of special cargo are not expected to exceed the axle load design specifications of the road. Accordingly, potential destruction of the road surface by overweight vehicles is minimized, which should allow long defect-free service life of the road. 38. Maintenance depots, completed within the scope of the project, will further enhance road maintenance and sustainability of road assets. Routine maintenance of roads in Kazakhstan is implemented by KazakhAvtoDor State Enterprise. It Zhambyl oblast KazakhAvtoDor has 5 maintenance depots and after completion of deports in Akyrtobe and Otar, the total network of deports will increase to 7. The depots assure quick response time for cleaning the roads, especially during winters, maintaining road signs and markings, monitoring overall road conditions on the daily basis and providing routine maintenance of the road surface. 39. In October 2015, JSC KazAvtoZhol was designated as the national road operator, responsible for construction and maintenance of the national highway network. JSC KazAvtoZhol is expected to become fully self-financing capable of developing and maintaining the national highway network of 24,000 km not later than by 2022. This will be achieved through tolling of 7,000 km of major highways. According to the company operating business plan, about 2,500 km of the Western Europe–Western PRC Highway will be tolled. Road sections completed under this project are the primary candidates to become toll roads. Annual revenue from tolled sections of the Western Europe–Western PRC Highway is projected at T8.5 billion which is equivalent to around $10,000 per km of tolled roads. Although such revenue will be sufficient to maintain tolled sections, and contribute to maintenance on untolled national highways, the government has been providing substantial allocation for road maintenance. 40. In the 3 years since completion of the project roads (2013–2015), the financial allocation for road sector development and maintenance increased from 0.63% to 0.84% of GDP (Appendix 11). The COR and KazAvtoZhol initiated further institutional reforms in road maintenance with the performance-based maintenance project planned for implementation with ADB financial and institutional support. E. Impact

41. Environment. An environment impact assessment was prepared in accordance with ADB’s Environment Policy (2002), the country's environmental laws and regulations, the environmental assessment and review framework, and the cumulative environmental impact assessment prepared for the investment program. Public consultations during project processing were held in Kulan and Merke in January 2009. The anticipated environmental impacts included air and water pollution, contamination and erosion of soils, increased noise, clearing roadside vegetation, passages for animals and agricultural equipment, traffic hindrance

22

Maximum axle load in Kazakhstan complies with Commonwealth of Independent States agreement on vehicle weight, total, and axle load for commercial vehicles (Minsk Agreement 1999).

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and congestion, safety and accidental risks, traffic safety, impacts of earthworks and borrow pit operations, solid waste management, and impacts on archeological sites in the project’s right-of-way. The project implementation complied with the EMP prepared by contractors and approved by the CSC. Five semiannual environmental monitoring reports were uploaded to the ADB website. Independent laboratories engaged by the contractors carried instrumental monitoring of air, noise, vibration, and water. The borrow pits, quarries, and service roads were reinstated upon completion of the works. During the project, the contractor KazakhDorStroy cut 6,530 trees along their road section and the contractor KCC—7.32 hectares of roadside tree belt. Following project completion, reforestation along the project road was supposed to be implemented with financing from the government. As of July 2016, reforestation works had not started. 42. Land acquisition and social safeguards. During project design in 2009, the design firm KazNIiPI Dortrans prepared for the COR the scope of land acquisition under the project, initial list of affected land plots and structures, and their owners. Information on the affected plots was derived by plotting the proposed road alignment into the land cadaster, provided by the Zhambyl State Scientific and Production Center for Land Management (GosNPTsZem). The land cadastre was used to identify the names of registered landowners, leaseholders, and affected persons with permanent land use rights; the size of the affected plots; and the proportion of affected land against the total area of the plot. The LARP identified 1,243 affected persons, including 99 households and 11 legal entities and workers and traders in affected establishments. However, because of the road realignment, two more LARPs were prepared in 2011 (one for the road section Km 305–331, to address additional land acquisition due to the road realignment, and another for the road section Km 331–389.5). In addition, the CSC prepared another LARP in July 2013 for three affected persons who were left out during preparation of the main LARP. These three landowners were left out because of a counting error by GosNPTsZem. A total of 123 affected parties comprising 110 households and 13 legal entities were identified and received compensation. 43. During the project, 53 persons, groups, or communities placed 57 categories of grievances before the grievance redress committee. Of the 57 grievances, 8 were found under the first LARP (Km 305–331) and remaining 49 under the second LARP (Km 331–389). The complaints included environmental issues, resettlement issues, negative impacts on businesses, access to farmlands and cemeteries, and access to quality water. All cases except one were resolved. The case of 20 affected honey vendors is in the final stage of resolution. Road safety concerns displaced the vendors from their place of business. To compensate for business losses, they received a 1-hectare land plot at the Km 328.4 for establishment of a honey market. After electrification of the site, it will be registered as the Merke honey market. As of July 2016, several vendors had already set their honey stalls at the new location. 44. The case of one affected person whose roadside café lost sales revenue because of the road realignment was not resolved during the project time. After project completion, the affected person realized that potential customers were bypassing the café because of the traffic flow realignment at the Merke interchange. Starting in 2013, the affected person wrote to ADB several times regarding his situation. ADB wrote several follow-up letters to the COR and MOTC, and conducted a number of consultations with the affected person, the COR, KazAvtoZhol, and Merke village administration. Since the affected person was unable to provide sufficient evidence of business losses, his entitlement for compensation was below his expectations. After considering several possible options for compensation, the affected person accepted the option of alternative land plot. Two lands plots were identified by Merke administration for this purpose, but the affected person rejected them due to lack of water and electricity utilities.

13

In May 2016 Merke administration issued a decree to acquire the remaining plot of land for state needs. However CoR declined to acquire as they did not require it for the project purposes. The Akimat could not find the remaining plot suitable for district needs as well. In August 2016, ADB facilitated an agreement among the affected person, the COR and Merke local administration, according to which the COR would acquire land and facilities and compensate business losses of the affected person. According to the agreed action plan, the affected person with help of independent, certified valuators will estimate the total amount of compensation for his land, property and business losses. The local government will issue a resolution, according to which the COR will apply for the Government of Kazakhstan funding and will be able to pay the compensation by May 2017. ADB will continually monitor the resolution of this case in line with the agreed approach. The case will remain on the agenda of transport project review missions and safeguard review missions until it is closed. 45. Socioeconomic impact. Socioeconomic and regional economic impact was assessed through the project performance management system. Interviews and consultation meetings with local people were combined with indirect methods of data collection. Key benefits of the project are associated with the reduction of time and cost of travel. Estimated travel time between Almaty and Shymkent decreased from 12 hours to 8 hours, and between Otar and the border of the South Kazakhstan oblast from 10 to less than 6 hours. Time and vehicle operating costs savings increased trade and traffic volumes in the corridor. The number of vehicles on the Blagoveschenka–Merke road section, including commercial cargo and passenger vehicles, doubled from 2009 after completion of the road. The significantly shorter travel time increased access of local people to regional markets and social services. From 2009 to 2013, unemployment in Zhambyl oblast fell from 6.0% to 5.1%. Most of those employed on the project were local people. During project implementation, no more than 13% of the contractors’ staff and no more than 22% of CSC staff were foreign employees. 46. The completed road includes essential road safety features, such as a median barrier to separate opposing traffic lanes and side guardrails to keep vehicles within their roadway and preventing them from colliding with any dangerous objects outside of the roadway. Those measures substantially reduce risks of head-on collisions—the main cause of death on Kazakhstan roads. Based on traffic accident reports, the fatality rate on the project road reduced in more than 3 times in 2015 compared to the pre-project period. 47. The project delivered benefits to all categories of travelers, including women. Although the project did not include gender design elements, reduced travel time and significantly increased traffic safety contributed to increasing female mobility. The new road with two lanes in each direction, safety barriers, and high-quality surface can attract more female drivers, who used to avoid potentially risky intercity travel, to travel more and benefit from the new economic and social opportunities. During the project, project consultants and contractors employed female managers and specialists under strict compliance with nondiscriminatory treatment of female workers. 48. Regional economic impact. The improved road sections will stimulate trade with neighboring countries, such as the Kyrgyz Republic, the PRC, the Russian Federation, and Uzbekistan. The road is part of the national transit corridor that connects the European Union, the Russian Federation, and Kazakhstan with the PRC. Reduced travel time and vehicle operating costs are expected to lower the cost of trade and stimulate regional economic activity. The establishment of the Eurasian Economic Union among Armenia, Belarus, Kazakhstan, Kyrgyz Republic, and the Russian Federation in 2015 will further stimulate regional economic development and trade. The development of the Center of International Cooperation in Khorgos,

14

in line with the national programs of regional economic integration of Kazakhstan and PRC, will also boost growth of regional trade. The project removed potential infrastructural bottlenecks to achieving the full economic outcome from these high-impact regional cooperation initiatives.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

49. The overall assessment of the project is successful, based on its assessment as relevant, effective, efficient, and likely to be sustainable (Appendix 12). B. Lessons

50. The key lessons learned from this project are as follows:

(i) Collaborative cofinancing arrangement. The project was part of the MFF implemented jointly with IDB and JICA based on a collaborative cofinancing arrangement. The partnership of three development institutions enabled the road transport corridor within Zhambyl oblast to be completed uninterrupted within a short period. It can serve as a good example of development partner coordination for the benefit of a developing member country within the framework of the CAREC program.

(ii) Road design. The road design underwent minor adjustments, including realignment of a 20 km section of the road because the alignment of the national border was incorrectly determined. During the design stage, the COR and the designer assumed that the border between Kazakhstan and the Kyrgyz Republic was south of the road, which would mean that the road section (Km 310.5–331.0) would be entirely within Kazakhstan territory. However, when Kazakhstan demarcated its border perimeter before the establishment of the Eurasian Economic Union, the border as delineated in the agreement between Kazakhstan and the Kyrgyz Republic was found to coincide with the axis of the road. The road alignment had to be redesigned after the civil works contractor had been mobilized, which delayed the civil works and increase costs. Other minor corrections in the road design, implemented during the works, such as replacement of unsuitable soils, realignment of cables, additional cattle underpasses, and additional culverts for irrigation, if properly assessed and addressed during the design phase, could reduce time and the cost of works, resulting in some savings of loan funds and enhancing the economic return of the project.

(iii) Maintenance depot small works planning and implementation. Although small works at four maintenance depots accounted for less than 6% of the total cost of civil works at appraisal, this component had a disproportionate number of technical challenges. Depot designs, prepared several years before the project, required revisions because of higher groundwater in one location. That project site had to be relocated. At the second site, part of the land allocated for the depot was sold to a private owner between the time the facility was designed and project approval and ADB financing. As such, the facility had to be partially relocated. Once works started, one of the contractors experienced significant delay in obtaining the required construction permit. The works at two sites were further delayed because of the contractor’s insolvency. Many issues with the works at the four maintenance deports were outside of the contractor’s control.

15

However, COR representatives expressed the view that one ICB procurement package for the four depots could be attractive for more experienced international bidders that would be able to handle operational issues more efficiently and complete all works on time.

(iv) Design and build contracting. Project roads mostly used existing rights-of-way and were implemented by experienced national and international contractors that could handle design changes during project implementation efficiently. At the same time, the detailed design prepared by KazDorProject had many mistakes and omissions that had to be corrected during the civil works implementation. Future projects in Kazakhstan can be implemented under design-and-build arrangements, following established international road construction practices. ADB can consider assisting the COR and KazAvtoZhol in determining the feasibility of design-and-build contracts for future road projects and assist in increasing the capacity of the implementing agencies in procuring and implementing works under such arrangements.

(v) Early setup of a robust project performance monitoring system. During the preparation of this project completion report, essential information required for the project impact assessment was not available in the project reports. The COR should have paid more attention to the project performance management system throughout the project. Quantitative performance monitoring indicators should be established during project preparation to measure expected socioeconomic benefits and determine the project’s impacts. For future projects, detailed guidance should be provided during project preparation on the establishment and implementation of the project performance management system. The project preparatory technical assistance should include a specific activity in this regard.

C. Recommendations

51. Corridor management and safety. As part of the operational maintenance reform, the completed road along with other sections of the MFF road are considered for conversion into a toll roads. It is recommended to implement integrated road management, based on the Intelligent Transport System solutions, to enable better traffic planning and control and improve road safety and road asset management. 52. Monitoring the outstanding safeguard issue. ADB should continue to closely monitor the case of one affected person who claims business revenue losses as a result of the project. ADB will monitor the progress in accordance with the minutes of the meeting held on 16 August 2016 among the affected person, COR and Akimat. 53. Monitoring the outstanding reforestation works. ADB should monitor and remind the COR that reforestation works along the project roads shall be completed as planned.

16 Appendix 1

DESIGN AND MONITORING FRAMEWORK (ADB’S TRANCHE 2 PROJECT)

Design Summary Performance

Indicators/Targets Data Sources and/or

Reporting Mechanisms Status at Completion Impact

a

Sustainable economic development

By 2020 Kazakhstan’s GDP growth by 60% from 2010 level

Kazakhstan’s export and import increased by 30% from 2010 level

Government statistics

GDP growth between 2010 and 2015: by 24.5% Import decline between 2010 and 2015: by 19.1% Export decline between 2010 and 2015: by 26.9%

Outcomea

Development of an efficient transport network in Zhambyl oblast

By 2015 Increased average traffic volume to 7,000 vpd from 4,000 vpd in 2007 Reduced average travel time between Zhambyl oblast and south Kazakhstan border and Otar to 6 hours from 10 hours Reduced transport cost for freight to 5% of the cargo value from 10% in 2008 Reduced road accident rate to 0.1 fatality/km from 0.3 fatality/km in 2006 Tranche 2 will benefit 10,000 people in the project area

National, provincial, and district socioeconomic statistics from Central Statistics Office Periodic classified traffic counts and accident data system from Central Statistics Office Freight Forwarder Association statistics ADB program completion report, Traffic police reports ADB program completion report

Achieved (MFF). Average traffic volume increased to 8,000 vpd in 2015 from 4,000 vpd in 2007 Achieved (MFF). Average travel time between the southern Kazakhstan border and Otar reduced to 6 hours from 10 hours in 2009 Achieved (project 2). VOC savings per kilometer for freight vehicles achieved 36% in 2015 compared to 2010 Achieved (project 2). Road crash rate reduced to 0.08 fatality/km in 2015

b (3.5 per

100 million vehicle-km) Achieved (project 2). More than 10,000 people in the project area benefited

Outputs By 2013 1. 79 km road section

in Zhambyl oblast of the CAREC Transport Corridor 1 reconstructed

Highway section km 310.5–km 389.4 in Zhambyl oblast reconstructed with IRI of less than 3 m/km

Executing agency’s project progress reports for ADB sections

ADB’s loan review missions

Executing agency’s and ADB’s project completion reports

Achieved. 79 km road section reconstructed with IRI of less than 3m/km.

2. Four road maintenance depots constructed

Road maintenance depots reconstructed in Otar, Akyrtobe, Korday, and Merke

Partially Achieved. Merke depot completed

Korday and Akyrtobe depots to be completed by December 2016

Otar depot completed partially (63%)

Activities with Milestones 1. 79 km road section reconstructed 1.1 Recruit and engage construction supervision consultant by

Q4 2010 1.2 Award works contracts by Q3 2010 1.3 Complete road construction by Q4 2013 2. Four road maintenance depots reconstructed 2.1 Award contracts for road maintenance depots by Q3 2011 2.2 Complete road maintenance depot construction by Q2 2014

Inputs at Appraisal

ADB loan: $187.00 million (OCR)

Government: $33.00 million

Total: $220.00 million

Actual Inputs

ADB loan: $184.66 million (OCR)

Government: $33.99 million

Total: $218.65 million

GDP = gross domestic product, IRI = international roughness index, vpd = vehicles per day. a The impact and outcome statements and indicators are for the entire investment program.

b As the data was based on a single year, this measurement should only be seen as indicative of the reduction of road crashes (data sourced from 2015 policy report on road crashes, which included the ADB-financed project road section).

Source: Asian Development Bank; and Committee of Roads, Ministry of Transport and Development.

Ap

pe

ndix

2 17

SUMMARY OF THE MULTITRANCHE FINANCING FACILITY

Project 1 Project 2 Project 3 Project 4 Loan No. Loan 2503 Loan 2562 IDB Loan

a Loan 2697 Loan 8251

a Loan 2735

Road Length (km) – Target 125 79 57 98 20 49

– Actual 125 79 57 98 20 49

Loan Amount ($ million)

– Original 340.00 187.00 170.00 173.00 70.30b 112.00

– Revised c 224.95 n/a n/a n/a n/a n/a

– Actual 224.10 184.65 169.99 164.67 68.33 104.25

Loan Approval 30 December 2008 7 October 2009 8 February 2009 15 November 2010 31 May 2010d 21 February 2011

Loan Signing 30 March 2009 3 December 2009 31 July 2009 15 December 2010 23 August 2010 7 June 2011

Loan Effectiveness 31 July 2009 13 April 2010 16 January 2010 15 June 2011 15 July 2011 22 December 2011

Loan Closing – Original 31 December 2013 30 June 2015 12 Nov 2013 31 December 2013 15 July 2020 31 December 2014

– Revised n/a n/a n/a 31 December 2014 n/a n/a

– Actual 20 March 2014 22 October 2015 12 Nov 2013 22 April 2015 June 2016d 27 April 2015

ADB = Asian Development Bank; JICA = Japan International Cooperation Agency, IDB = Islamic Development Bank, km = kilometer, n/a = not applicable. a The IDB-financed component, on parallel cofinancing arrangement, was not administered by ADB. The JICA-financed component was administered by ADB,

following the Framework Agreement between Asian Development Bank and Japan Bank for International Cooperation for the Implementation of the Accelerated Cofinancing Scheme with ADB, effective on 26 September 2007.

b The loan amount approved by JICA was ¥6,351 billion ($68 million equivalent at approval).

c Loan proceeds partially cancelled.

d The date shown is the JICA approval date.


18 Appendix 3

SUMMARY DETAILED ENGINEERING DESIGN

Road Sections Works Description

Length Design Speed (km/hr)

No. of

Lanes

Carriageway Width

(m) Road Pavement Section (km)

Kulan–Blagoveschenka road section

Upgrading existing road from 2-lane asphalt to 4-lane cement concrete pavement

km 310.5–358.6

48.1 120 4 2x7.25 + 4 m median

Category IB - cement concrete

pavement km 358.6–

389.4 30.8 120 4 2x7.25

+ 4 m median Category IB -

cement concrete pavement

Taraz–Zhambyl oblast border road section

Upgrading existing road from 2-lane asphalt to 4-lane cement concrete pavement

km 536– 593

57.0 120 4 2x7.25 + 4 m median

Category IB - cement concrete

pavement

Total 135.9 hr = hour, km = kilometer, m = meter. Note: Kazakhstan pavement category standards are as follows: Category IA: four-lane asphalt concrete pavement; Category IB: four-lane cement concrete pavement; Category II: two-lane asphalt concrete pavement.


Ap

pe

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4 19

PROJECT CONTRACT PACKAGES

Package Description

Works

Construction Supervision Consultant

Road Construction Road Maintenance and Operation Facilities

Kulan–Blagoveshchenka Km 310.5–358.6

Kulan–Blagoveshchenka Km 358.6–389.4

Construction of buildings and

facilities in Korday


facilities in Otar


facilities in Akyrtobe


facilities in Merke

Length output (km) 48 31 n/a n/a n/a n/a n/a

Contractor’s/Consultant’s Name

KCC Eng'g and Construction Co.

Ltd (KOR) Kazakhsdorstroy

LLP (KAZ) Axioma Service

Contract LLP (KAZ)

Axioma Service Contract LLP

(KAZ) Kulager Construction

Corp LLP (KAZ)

Kulager Construction Corp

LLP (KAZ)

Dohwa Consulting Engrs Co. Ltd.

(KOR) Procurement Method ICB ICB NCB NCB NCB NCB QCBS

ACN Posting 1 October 2009 1 October 2009 1 October 2009 1 October 2009 1 October 2009 1 October 2009 1 October 2009 IFB / CSRN Posting 23 December 2009 23 December 2009 23 Sept 2010 23 Sept 2010 23 Sept 2010 23 Sept 2010 26 November 2009 Contract Award Date 25 May 2010 25 May 2010 7 July 2011 7 July 2011 7 July 2011 7 July 2011 15 November 2010 Contract Signing Date 1 July 2010 5 June 2010 2 August 2011 2 August 2011 2 August 2011 2 August 2011 17 November 2010 Contract Period – Original 33 months 31 months 18 months 18 months 18 months 18 months 33 months – Actual 33 months 28 months _ months 26 months _ months 34 months 58 months Defects Liability Period 730 days 730 days 365 days 365 days 365 days 365 days n/a Commencement Date 17 September 2010 17 September 2010 19 January 2012 13 April 2012 17 August 2012 15 September 2011 7 December 2010 Completion Date– Original 1 August 2013 17 January 2013 06 February 12 1 May 2012 4 September 2012 3 October 2011 9 January 2011

– Actual 18 June 2013 29 December 12 tbd 10 June 2014a tbd 15 July 2014 30 June 2015

Accepted Contract Amount T12,103,767,435 T8,536,346,373.68 T417,766,362.00 T331,705,191 T337,479,769.20 T425,000,000.32 $3,227,405.71b

Variations - Number 4 6 2 2 1 2 6 - Amount T3,080,711,747.04 T654,773,761.54 T12,355,389.76 T10,297,895.00 T130,598,133.68 T5,667,329.39 $371,844.55

- % to ACAc 25% 8% 3% 3% 39% 1% 12%

Price Adjustment - Total Amount T2,459,154,517.25 T3,599,907,047.23 T68,232,885.88 T57,997,813.05 0 T65,772,043.80 n/a

- % to ACAd 20% 42% 16% 17% 15% n/a

Revised Contract Amount T17,643,633,698.90 T12,794,308,887.78 T498,354,637.64 T400,000,899.05 T468,077,902.88 T496,439,373.51 $3,599,250.26b

Revised Contract Amount (ADB financing)e T14,997,088,644.07 T10,875,162,554.61 T423,601,441.99 T340,000,764.19 T397,866,217.45 T421,973,467.48 $3,213,616.30 Disbursed (ADB financing) T14,997,088,644.07 T10,875,162,554.61 $400,826,378.76 T227,766,730.59 T260,899,824.80 T408,157,706.86 $2,834,475.48 Disbursed ($ equivalent, ADB financing) $100,431,800.80 $73,130,911.87 $2,663,334.76 $1,491,942.05 $1,443,454.90 $2,663,711.89 $2,834,475.48

ACA = accepted contract amount, ACN = advance contracting notice, ADB= Asian Development Bank, CAD = Canadian dollar, CSRN = consulting services recruitment notice, ICB = international competitive bidding, IFB = invitation for bids, KAZ = Kazakhstan, KOR = Republic of Korea, n/a = not applicable, NCB = national competitive bidding, QCBS = quality- and cost-based selection. a Termination date.

b Inclusive of VAT.

c The weighted average percentage increase of all contract variations is 18% of the total accepted contract amount for all works contracts.

d The weighted average percentage increase of the total price escalation is 28% of the total accepted contract amount for all works contracts.

e ADB financing is 85% of the total expenditure claimed for works and 100% for consulting services (net of VAT) as per loan agreement.


20

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5

PROJECT COST AND FINANCING PLAN ($ million)

Appraisal Estimate Actual Cost

Item ADB

(L2562)

IDB Government Total ADB

(L2562) IDB Government Total

Project 2 – Total 136 km sections

A. Base Cost 1. Civil Works

a. Km 310.5–358.6 (48 km) 93.00 16.00 110.00 100.41 25.51 125.94

b. Km 358.6–389.4 (31 km) 63.00 11.00 74.00 73.13 6.93 80.06 c. 4 road maintenance facilities 9.00 2.00 11.00 8.26 1.16 9.42

d. Km 536.6–593 (57 km) 146.00 22.00 167.00 164.64 19.80 184.44 Subtotal (civil works) 166.00 146.00 51.00 362.00 181.83 164.64 53.40 399.86 2. Consulting Services a. Construction Supervision (ADB) 4.00 1.00 5.00 2.83 0.39 3.22 b. Project Management (IDB) 3.00 3.00 2.17 0.18 2.35 c. Construction Supervision (IDB) 6.00 1.00 7.00 3.19 0.33 3.52 Subtotal (consulting services) 4.00 9.00 2.00 15.00 2.83 5.36 0.90 9.09 Total Base Cost (A) 170.00 155.00 53.00 377.00 184.66 170.00 54.30 408.96 B. Contingencies

b 17.00 15.00 5.00 38.00 0.00 0.00 0.00 0.00

Total Project Cost (A+B) 187.00 170.00 58.00 415.00 184.66 170.00 54.30 408.96

ADB’s Tranche 2 – 79 km sections

A. Base Cost 1. Civil Works

a. Km 310.5–358.6 (48 km) 93.00 16.00 110.00 100.41 25.51 125.94 b. Km 358.6–389.4 (31 km) 63.00 11.00 74.00 73.13 6.93 80.06 c. 4 road maintenance facilities 9.00 2.00 11.00 8.26 1.16 9.42 Subtotal (civil works) 166.00 29.00 195.00 181.83 33.60 215.43 2. Construction Supervision 4.00 1.00 5.00 2.83 0.39 3.22 Total Base Cost (A) 170.00 30.00 200.00 184.66 33.99 218.65 B. Contingencies

b 17.00 3.00 20.00 0.00 0.00 0.00

Total Project Cost (A+B) 187.00 33.00 220.00 184.66 33.99 218.65

ADB = Asian Development Bank, IDB = Islamic Development Bank, km = kilometer, L = loan. a Contingency includes physical and price adjustments.

Source: Asian Development Bank; and Committee of Roads, Ministry of Investments and Development.

Appendix 6 21

DISBURSEMENT OF ADB LOAN PROCEEDS

Table A6: Annual and Cumulative Disbursement of ADB Loan Proceeds Item 2010 2011 2012 2013 2014 2015 Total

Annual Disbursement

($ million) 22.31 51.12 87.05 21.10 1.31 1.77 184.66

(%) 12.08 27.68 47.14 11.43 0.71 0.96 100.00

Cumulative Disbursement

($ million) 22.31 73.43 160.48 181.58 182.89 184.66 184.66

(%) 12.08 39.77 86.91 98.33 99.04 100.00 100.00

ADB = Asian Development Bank. Source: Asian Development Bank.

Figure A6: Annual and Cumulative Disbursement of ADB Loan Proceeds

Source: Asian Development Bank.

22

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7

PROJECT IMPLEMENTATION SCHEDULEa

km = kilometer, Q = quarter a Excludes IDB-financed section, as ADB did not administer the component. Source: Asian Development Bank; and Committee of Roads, Ministry of Transport and Development.

Road Section 1:

Km 310.5―358.6 (48.1 km)

Road Section 2:

Km 358.6―389.4 (30.8 km)Road Section 1:

Km 310.5―358.6 (48.1 km)

Road Section 2:

Km 358.6―389.4 (30.8 km)

Korday Depot

Otar Depot

Akyrtobe Depot

Merke Depot

Korday Depot

Otar Depot

Akyrtobe Depot

Merke Depot

2009

Implementation

Procurement (NCB)

Recruitment of CSC consultant

Implementation of CSC contract

Civil Works for Road Improvement

Procurement (ICB)

Q3 Q4 Q1 Q3Q2 Q4Q2Q3 Q4 Q2

Consulting Services

Q1

2010

Implementation

Civil Works for Road Operation Facilities

2011Component/Major Activity

2012 2013

Q1

2014

Q1Q2 Q3 Q4 Q3 Q4Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2016

Q3 Q4

2015

Q1 Q2

Estimate Actual Defect Notification Period

Appendix 8 23

CHRONOLOGY OF MAJOR EVENTS

Year Date Main Event

2008 19 February Concept paper approved. 8 September Advance contracting of civil works and consulting services approved. 2009 20–27 February Consultation mission fielded. 21–30 April Consultation mission fielded. 6–14 June Consultation mission fielded. 1 September Management review meeting held. 28–29 September Loan negotiations held between ADB and Ministry of Finance. 1 October Advance contracting notice posted in ADB and executing agency

websites. 7 October Loan 2562 (MFF second tranche) approved. 26 November CSRN for construction supervision consultant advertised. 3 December Loan 2562 agreement signed. 23 December IFB for procuring road works advertised. 2010 27 January Extension of loan effectiveness deadline approved. 2–13 February Loan inception mission fielded. 13 April Loan 2562 effectiveness declared. 25 May Works contract award for constructing the two road sections in

Kulan–Blagoveshchenka approved. 3–9 June Loan review mission fielded. 5 June Works contract for constructing Km 358.36–389.40 road section in

Kulan–Blagoveshchenka signed. 2–10 June Loan review mission 1 fielded. 1 July Works contract for Km 310.5–358.36 road section in Kulan–

Blagoveshchenka signed. 17 September All road works in Kulan–Blagoveshchenka commenced. 23 September IFB for procuring depot works through NCB advertised. 27 September–5 October Project review mission 2 fielded. 15 November Contract for construction supervision consultant awarded. 17 November Contract for construction supervision consultant signed. 10 December Services of the construction supervision consultant commenced. 2011 26 January–4 February Safeguard (social) review mission fielded. 7–13 June Safeguard review 1 mission 7 July Works contracts for depots in four sites awarded to two local firms. 13–19 July Project review mission 3 fielded. 2 August Works contracts for four road maintenance depots (Korday, Otar,

Akyrtobe, and Merke) signed. 6–15 August Midterm safeguard (environment) review mission fielded. 6–26 August Midterm safeguard (social) review mission fielded. 15 September Works for NCB-4 contractor (Merke depot) commenced. 4–11 October Special project administration mission fielded. 2 December Minor change in project scope approved. 2012 16–27 January Safeguard review mission 2 fielded.

19 January Works for Korday depot contractor commenced.

9–16 February Project review mission 4 held.

13 April Works for Otar depot contractor commenced.

23 April–4 May Project review mission 5 fielded.

17 August Works for Akyrtobe depot contractor commenced.

25 September–8 October Midterm project review mission fielded.

24 Appendix 8

Year Date Main Event

2012 29 December Works for road contract (Km 358.6–389.4) completed. Engineer issued the taking-over certificate.

2013 2–12 April Project review mission 6 fielded. 3–11 June Project review mission 7 fielded. 18 June Works for road contract (Km 310.5–358.6) completed. Engineer

issued the taking-over certificate to the contractor. 15–19 July Safeguard (social) consultation mission fielded. 6–7 September Safeguard (social) consultation mission fielded. 21–30 October Project review mission 8 fielded. 2 January Project implementing agency changed from Committee of Roads to

KazAvtoZhol JSC. 2014 5–7 March Safeguard mission held. 10 June Committee of Roads terminated the works contract for Otar depot. 8–16 July Project review mission held. 15 July Certificate of completion issued to Merke depot contractor, with

defects liability period from 16 July 2014 to 15 July 2015. 6 August Executing agency changed from Ministry of Transport and

Communications to Ministry of Investments and Development. Committee of Roads as implementing agency retained.

29 September–4 October Project review mission 9 held. 23 October IFB for the remaining of works at Otar depot posted, but no bid was

submitted due to small contract size. Committee of Roads will rebid further out of state budget.

22 December Extension of completion date for Akyrtobe depot from 7 December 2014 to 5 June 2015 approved.

2015 2–6 March Project review mission 10 held. 25–30 May Project review mission 11 held. 30 June Services of construction supervision consultant completed under

ADB loan. Contract extended up to end of defects liability period under Government of Kazakhstan financing.

30 June Loan closing date as indicated in the loan agreement. Remaining works at depots beyond the loan closing date will be financed by the Government of Kazakhstan.

12–22 October Project review mission held. 22 October Loan 2697 financially closed and unutilized amount of $2.34 million

cancelled. 2016 25–28 April Project completion mission fielded.

ADB = Asian Development Bank, CSRN = consultant services recruitment notice, IDB = Islamic Development Bank, IFB = invitation for bids, MFF = multitranche financing facility. Source: Asian Development Bank; and Committee of Roads, Ministry of Transport and Development.

Appendix 9 25

PROJECT ORGANIZATION STRUCTURE AT APPRAISAL (ADB SECTION)

International Financial Institutions

Asian Development Bank

Ministry of Finance (representing the borrower)

Ministry of Transport and Communications (executing agency)

Committee of Roads (implementing agency)

Project Director

(with Committee of Roads staff for road engineering, construction supervision, financial management,

safeguards, and contract

Construction Supervision

Consultant

Zhambyl Oblast Road Department/

Zhambyl Road

Contractor 2 [Km 358.6–389.4]

Maintenance Depot Contractor 3

[Merke and Akyrtobe depots]

Contractor 4 [Kordai and Otar depots]

Contractor 1 [Km 310.5–358.6]

Project Management Consultant (under L2503)

SAI


26 Appendix 9

PROJECT ORGANIZATION STRUCTURE AT COMPLETION (ADB SECTION)

International Financial Institutions

Asian Development Bank

Ministry of Finance (representing the borrower)

Ministry of Investment and Development (executing agency)

Committee of Roads (implementing agency)

Project Director

(with Committee of Roads staff for road engineering, construction supervision, financial management,

safeguards, and contract

Construction Supervision Consultant

DOHWA Consulting Engineers Co. Ltd.

Road Laboratory

KazAvtoZhol

Project Management Consultant (under L2503)

SAI

Contractor KazahDorStroi (KDS)

[Km 358.6–389.4]

Maintenance Depot Contractor Kulager LLP

[Merke and Akyrtobe] Axioma LLP

[Kordai depot] Contract Terminated

[Otar]

Contractor KCC E&C

[Km 310.5–358.6]


Appendix 10 27

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Covenant

Reference in Loan

Agreement Status of Compliance SECTOR

Implementation Arrangements: The Borrower has designated MOTC/MID as the Project Executing Agency and COR as the implementing agency for the Project.

Schedule 5, Para. 1

Complied with. The Government of Kazakhstan designated MOTC/MID as the executing agency for the investment program and its subsequent tranche projects. MOTC/MID designated the COR as the implementing agency for all tranches under the investment.

The Project Director appointed by MOTC/MID shall be responsible for the day-to-day implementation of the Project. The Project Director shall be assisted by the MOTC/MID staff responsible for road engineering, financial, legal and procurement matters. The PMC-ADB shall be set up to support the Project Director in the following areas: project management, procurement, finance, administration, evaluation, monitoring and reporting, and due diligence for subsequent projects.

Para. 2 Complied with. The assigned MOTC/MID staff assisted the project director on road engineering, financial, legal, and procurement matters. MOTC/MID recruited the PMC-ADB during the start of the tranche 1 project implementation (10 Nov 2009) to assist the project director in managing the tranche projects under the investment program.

The Borrower shall ensure that (a) adequate MOTC/MID staff is assigned to assist the Project Director for the entire duration of the Project; and (b) construction supervision consultants are mobilized by MOTC/MID prior to commencement of the Works.

Para. 3 Complied with. MOTC/MID assigned its staff to assist the project director on road engineering, financial, legal, and procurement matters. MOTC/MID awarded the contract to Dohwa as the construction supervision consultant on 15 Nov 2010. The consultant commenced its services on 7 Dec 2010.

The Borrower shall cause MOTC/MID to ensure that, subsequent to award of the Works contracts, no notice to proceed is issued to contractors for the respective sections or parts of the Project Road until the applicable provisions of the LARP (including, in particular, the provision on the timely payment of compensations to affected persons), the EIA, and the updated EMP have been complied with.

Schedule 5, Para. 10

Complied with. Notice to proceed was issued to civil works contractors for the respective sections or parts of the project road, which complied with the applicable provisions of the LARP (including in particular the timely payment of compensations to affected persons), the EIA, and the updated EMP.

Construction Quality: The Borrower shall cause MOTC/MID to ensure that the Project is carried out in accordance with the applicable technical specifications and design, and that the construction supervision, quality control and Project management are performed in accordance with applicable standards and best international practices.

Schedule 5, Para. 5

Complied with. MOTC/MID and CSC ensured that road construction's quality followed the applicable technical specifications and design, and international standards.

28 Appendix 10

Covenant

Reference in Loan

Agreement Status of Compliance Road Safety: The Borrower shall cause MOTC/MID to (b) monitor the accident rate and traffic volume during the operation of the Project Road.

Schedule 5, Para. 6

Complied with. MOTC/MID and CSC monitored contractors' obligation with road safety measures during construction period. CSC progress reports included information on road safety measures and accident rates.

(a) The Borrower shall cause the Project to be carried out with due diligence and efficiency and in conformity with sound administrative, financial, engineering, environmental and social safeguards, road construction and road maintenance and operational practices. (b) In the carrying out of the Project and operation of the Project facilities, the Borrower shall perform, or cause to be performed, all obligations set forth in Schedule 5 to this Loan Agreement.

Article IV Particular Covenants Section 4.01.

(a) Complied with. Due diligence (safeguard, economic analysis, engineering design) was carried out. (b) Complied with. MOF performed the tasks indicated in Schedule 5.

The Borrower shall make available, promptly as needed, the funds, facilities, services, land and other resources which are required, in addition to the proceeds of the Loan, for the carrying out of the Project and for the operation and maintenance of the Project facilities.

Section 4.02. Complied with. MOF made counterpart funds available for the project, and MOTC/MID and COR made available the facilities, services, land, and other resources required to implement the project.

(a) In the carrying out of the Project, the Borrower shall cause competent and qualified consultants and contractors, acceptable to ADB, to be employed to an extent and upon terms and conditions satisfactory to the Borrower and ADB.

Section 4.03. Complied with. The procurement of works and recruitment of consulting services followed ADB guidelines, and each step of the process required ADB prior review.

(b) The Borrower shall cause the Project to be carried out in accordance with plans, design standards, specifications, work schedules and construction methods acceptable to ADB. The Borrower shall furnish, or cause to be furnished, to ADB, promptly after their preparation, such plans, design standards, specifications and work schedules, and any material modifications subsequently made therein, in such detail as ADB shall reasonably request.

Complied with. COR rigidly monitored the quality of works progress and completion following the design and technical specifications, work schedule, and construction method. COR thoroughly reviewed contract variations and adjustments as a result of price escalation before submitting to ADB for endorsement.

The Borrower shall ensure that the activities of its departments and agencies with respect to the carrying out of the Project and operation of the Project facilities are conducted and coordinated in accordance with sound administrative policies and procedures.

Section 4.04. Complied with. MOF, MOTC/MID, and COR (particularly those responsible for engineering, finance, safeguard, and contract management) collaborated and coordinated well with the Zhambyl Oblast Road Department, other relevant government agencies, and local administrations.

The Borrower shall enable ADB's representatives to inspect the Project and Project facilities financed out of the proceeds of the Loan, and any relevant records and documents.

Section 4.06. Complied with. ADB missions included site visits to inspect the physical progress of works and other facilities, discuss contract and

Appendix 10 29

Covenant

Reference in Loan

Agreement Status of Compliance implementation issues, and verify

project records. The Borrower shall ensure that the Project facilities are operated, maintained and repaired in accordance with sound administrative, financial, engineering, environmental and social safeguards, and road maintenance and operational practices.

Section 4.07. Complied with. COR staff regularly inspected the facilities on the project sites and in Astana office to ensure that they are following working environment standards.

Project Performance Monitoring System 14. The Borrower shall cause MOTC/MID to establish a project performance monitoring system within six (6) months of the Effective Date and collect baseline data for performance monitoring. The key indicators and assumptions outlined at the impact and outcome levels in the Project design and monitoring framework will be the primary data required for analysis.


Complied with. MOTC/MID and PMC established PPMS and monitor CSC's timely submission of PPMS reports (baseline, midterm, and final).

Project Review The Borrower shall cause MOTC/MID to submit to ADB: (a) quarterly progress reports within two (2) weeks of the end of each quarter covered, and (b) other performance and monitoring reports to be submitted to ADB on a semi-annual basis. A joint mid-term review shall be carried out two (2) years after the Effective Date. The mid-term review shall focus on the engineering, environmental and social safeguards of the Project, compliance with loan covenants and the undertakings set out in the FFA. The review will allow for any necessary midcourse corrections to ensure successful implementation and the achievement of objectives of the Project and the Investment Program.


Complied with. PMC and CSC submit monthly and quarterly project progress reports. However, submission delays were often observed.

FINANCIAL

Counterpart Funds Without limiting the generality of Section 4.02 of this Loan Agreement, the Borrower shall make available all counterpart funds required for timely and effective implementation of the Project through annual budget allocations to MOTC, and shall ensure that necessary resources thus required are released in a timely manner. The Borrower shall ensure that MOTC includes the updated funding requirements for implementation of the Project in its annual development programs.

Schedule 5, Para. 4

Complied with. MOF and MOTC/MID allocated counterpart funds, and released payment for withdrawal applications from 2010 to loan closing date in a timely manner.

(a) The Borrower shall (i) maintain, or cause to be maintained, separate accounts for the Project; (ii) have such accounts and related financial statements audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose

Article IV Particular Covenants Section 4.05.

(a) Complied with. (i) MOF/MOTC set up and maintained separate financial records and accounts for utilizing the ADB loan and the borrower’s counterpart funds; (ii) ADB accepted the audited project

30 Appendix 10

Covenant

Reference in Loan

Agreement Status of Compliance qualifications, experience and terms of reference are acceptable to ADB; (iii) furnish to ADB, as soon as available but in any event not later than six (6) months after the end of each related fiscal year, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors' opinion on the use of the Loan proceeds and compliance with the financial covenants of this Loan Agreement), all in the English language; and (iv) furnish to ADB such other information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request.

financial statements including the audit report and management letter for FY2011–FY2015, which were submitted by the independent auditor and uploaded in eOps project record; (iii) the audit report includes auditor’s opinion confirming the use of loan proceeds only for project purposes; and (iv) MOTC/MID provided any related information to ADB as requested.

(b) The Borrower shall enable ADB, upon ADB's request, to discuss the Borrower's financial statements for the Project and its financial affairs related to the Project from time to time with the auditors appointed by the Borrower pursuant to Section 4.05(a) hereabove, and shall authorize and require any representative of such auditors to participate in any such discussions requested by ADB, provided that any such discussion shall be conducted only in the presence of an authorized officer of the Borrower unless the Borrower shall otherwise agree.

(b) Complied with. ADB discussed with MOF and MOTC/MID any financial matters as needed.

Financial Management System The Borrower shall cause MOTC/MID to ensure that, by 30 April 2010, a financial management system of MOTC has been established and became operational, including the establishment of an automated accounting system with capacity to record and report on an annual basis project transactions and generate interim financial reports.


MOTC/MID had established the financial management system at the start of tranche 1 project implementation. The same system was adopted for the tranche 2 project.

SAFEGUARDS

Environment: The Borrower shall cause MOTC/MID to ensure: (a) that the design, construction, and operation and maintenance of the Project facilities are carried out in accordance with ADB's Environment Policy (2002), the Borrower's environmental laws and regulations, the EARF, the cumulative environmental impact assessment prepared for the Investment Program and agreed with ADB, and the EIA; and

Schedule 5, Para. 7

(a) Complied with. The design, construction, and O&M of the project facilities followed ADB's Environment Policy, EARF, EIA, and Kazakhstan environmental laws and regulations. CSC monitored the compliance.

(b) potential adverse environmental impacts arising from the Project are minimized by implementing all mitigation and monitoring measures as presented in the EMP.

(b) Complied with. CSC ensured contractors' EMP implementation on mitigation and monitoring measures to avoid or minimize potential adverse environmental impacts arising from the project.

Appendix 10 31

Covenant

Reference in Loan

Agreement Status of Compliance EMP update, implementation, monitoring, and reporting: The Borrower shall cause MOTC/MID to further ensure that:

Schedule 5, Para. 8

(a) the EMP is updated prior to issuance of any notice to proceed

(a) Complied with. EMP was updated prior to issuance of notice to proceed.

(b) sufficient resources are made available to implement, monitor, and record the implementation of the EMP

(b) Complied with. MOTC/MID allocated a budget of $0.3 million for environmental mitigation and monitoring activities. CSC was tasked to implement, monitor, and record EMP implementation status.

(c) semi-annual environmental reports are prepared and submitted to ADB within three (3) months of the end of each period covered

(c) Complied with. Semiannual environmental monitoring reports (English and Russian) were submitted to ADB. MOTC/MID and PMC monitored the timely submission and quality of reports.

(d) the reports include, inter alia, a review of progress made on the implementation of the EMP, problems encountered and remedial measures taken

(d) Complied with. The project progress reports included EMP implementation update.

(e) the detailed engineering design and the Works contracts under the Project incorporate applicable environmental measures identified in the EIA and the EMP

(e) Complied with. The detailed engineering design incorporated applicable environmental measures. All civil works contracts incorporated applicable environmental measures identified in the EIA and the EMP. All contract variations considered environmental measures, if applicable.

(f) contractors are supervised to ensure compliance with the requirements of the EIA and the EMP.

(f) Complied with. CSC supervised the compliance of civil works contractors with the EIA/EMP requirements.

Land Acquisition and Resettlement: The Borrower shall cause MOTC/MID to ensure that the Project is carried out in accordance with the Borrower's applicable laws and regulations, ADB's Policy on Involuntary Resettlement (1995), the LARF and the LARP including, inter alia, the following provisions:

Schedule 5, Para. 9

(a) the LARP shall be disclosed to affected persons in accordance with the LARF.

(a) Complied with. COR conducted consultations with local administrations and affected persons since 2007. Consultations were

32 Appendix 10

Covenant

Reference in Loan

Agreement Status of Compliance

again conducted in May and Aug 2009 in preparing the LARP. Brochures in Kazakh and Russian were distributed to affected persons and LARPs were posted in both the ADB and COR websites.

(b) the LARP shall be submitted to ADB for review and clearance prior to award of any Works contract

(b) Complied with. ADB approved the LARP on Dec 2009 prior to civil works contract awards in July 2010, and the LARP for km 305–331 (realigned section) in March 2011. LARP for km 331–389.5 was updated in September 2011 due to realignment of km 305–331 based on current database and additional surveys.

(c) all land and rights of way required by the Project shall be acquired and made available in a timely manner

(c) Complied with. A few cases where there is disagreement with the valuation or other issues had to be referred to the court for resolution. In some cases, gaps in the initial estimation of the area for civil works required recalculation and reprocessing of compensation. Since June 2013, there were no new affected persons. The compensation of the last two affected persons was paid by August 2013.

(d) all compensation and resettlement assistance shall be provided to affected persons prior to their displacement and dispossession and the compensation program of the LARP shall be fully implemented prior to issuing any notice to proceed

(d) Complied with. Affected persons losing land, structures were compensated prior to their displacement. The affected persons were compensated prior to dispossession of their assets.

(e) efficient grievance redress mechanisms shall be in place to assist affected persons resolve queries and complaints if any, in a timely manner

(e) Complied with. Grievance redress mechanism, through the community liaison group (CLG), was set up in 2010. CLG coordinator was mobilized. The list of CLG focal points from the contractor, supervision consultants, and local administrations was updated, and regular field visits by the CLG coordinator were initiated. A total of 57 different categories of grievances from 53 aggrieved persons, groups, communities were registered. All cases, with the exception of one

Appendix 10 33

Covenant

Reference in Loan

Agreement Status of Compliance affected person who lost business

revenue as a result of the project, were resolved. The last affected person agreed with the COR on the land swap through which he shall receive commercially attractive land where he can resume his business activity.

(f) adequate staff and resources shall be made available for supervising and monitoring the implementation of the LARP. An external monitoring agency, acceptable to ADB, shall carry out external monitoring and evaluation of the LARP and shall report the results to ADB at the start and completion of the LARP implementation process; and

(f) Complied with. CSC social development specialist prepares the internal resettlement monitoring report. The ADB-hired independent monitoring evaluator verified the LARP implementation. The compliance monitoring reports for the two LARPs were posted on the ADB website in June 2012. PMC social safeguard specialist conducted external resettlement monitoring for all projects under the MFF. CSC submitted the semiannual land acquisition and resettlement monitoring reports in September 2012 and March 2013.

(g) if during implementation of the LARP, any changes to the location, land alignment of roads, or additional environmental and/or resettlement impacts are identified, the LARP shall be updated and prior approval by ADB and the relevant government agencies shall be obtained before further implementation of the LARP.

(g) Complied with. LARP was prepared for the realigned section (km 305–331) due to border security reason, and posted on ADB website on March 2011. For newly identified affected persons, a supplemental LARP was prepared.

SOCIAL Labor, Gender, Health, and Social Protection: The Borrower shall cause MOTC/MID to ensure that (a) the Works contracts incorporate provisions to the effect that contractors shall (i) comply with applicable core labor standards, labor laws and incorporate applicable workplace occupational safety norms; (ii) not differentiate payment between men and women for work of equal value; (iii) not employ child labor in the construction and maintenance activities; and (iv) to the extent possible, maximize employment of local poor and disadvantaged persons for project construction purposes, provided that the requirements for job and efficiency are adequately met; and


(a) Complied with. The contracts complied with labor standards, had gender considerations, and considered use of the local workforce.

(b) disseminate information on the risks of sexually transmitted diseases, including human immunodeficiency virus/acquired

(b) Complied with. Training for preventing expansion of HIV/AIDS and other sexually transmitted

34 Appendix 10

Covenant

Reference in Loan

Agreement Status of Compliance immunodeficiency syndrome, to the employees of the Works contractors under the Project and to members of the local communities surrounding the Project Road

diseases and discussions about health and safety were conducted regularly by CSC to the civil works contractors and their employees. Labor residential camps are equipped with medical stations and personnel. Medical check-ups are conducted regularly.

OTHERS Anticorruption: The Borrower shall comply with ADB’s Anticorruption Policy (1998, as amended to date). The Borrower, consistent with its commitment to good governance, accountability and transparency, agrees that ADB has the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive or coercive practices relating to the Project, and the Borrower shall cooperate fully with any such investigation and to extend all necessary assistance, including providing access to all relevant books and records, as may be necessary for the satisfactory completion of any such investigation. In addition, the Borrower shall cause MOTC to (a) conduct periodic inspections on the contractors’ activities related to fund withdrawals and settlements; (b) ensure that all contracts financed by ADB in connection with the Project include provisions specifying the right of ADB to audit and examine the records and accounts of all contractors, suppliers, consultants, and other service providers as they relate to the Project; (c) ensure that the construction supervision consultant verifies the contractors’ payment certificates in accordance with working drawings and contract specifications; and (d) ensure that the anticorruption action plan developed for the Investment Program and agreed with ADB is implemented.


Complied with. MOF/MOT/MID complied with ADB's Anticorruption Policy. Update to anticorruption action plan is reflected in the latest version of the facility administration manual.

ADB = Asian Development Bank, CLG = community liaison group, COR = Committee of Roads, CSC = construction supervision consultant, EARF = environmental assessment and review framework, EIA = environmental impact assessment, EMP = environmental management plan, LARF = land acquisition and resettlement framework, LARP = land acquisition and resettlement plan, MID = Ministry of Investment and Development, MOF = Ministry of Finance, MOTC = Ministry of Transport and Communications, PMC = project management consultant, PPMS = project performance monitoring system. Source: Asian Development Bank; and Committee of Roads, Ministry of Transport and Development.

Appendix 11 35

ECONOMIC REEVALUATION

A. Background

1. The project was one of four to be financed under the multitranche financing facility (MFF) for the CAREC Transport Corridor 1 (Zhambyl oblast sections) [Western Europe–Western PRC International Transit Corridor] Investment Program approved in 2008. Through the MFF, the Asian Development Bank (ADB) is financing the corridor sections located in the Zhambyl oblast (province) in Kazakhstan with a total length of 480 km. 2. Project 2 comprised two components: (i) reconstruction of 79 km of the Almaty–Tashkent–Termez M36 road between Kulan, Merke, and Blagoveschenka (km 310.5 and km 389.4) with widening of the existing two-lane asphalt concrete road into a four-lane divided cement concrete road following the existing right-of-way; and (ii) construction of road maintenance depots in Otar, Merke, Akyrtobe, and Korday. B. Economic Analysis at Appraisal Stage

3. The economic analysis at appraisal was carried out using the Highway Development and Management (HDM) Model (version 1.3). The HDM model computes road user's economic costs for each section of road for each year of analysis. The inputs to the HDM model were adapted and calibrated to enable vehicle speeds and operating costs to be estimated as accurately as possible in the context of the road network in Kazakhstan. 4. The with-project scenario involved improvement of the Almaty–Tashkent–Termez M36 road (para. 2). The without-project scenario assumed that the road would remain largely unchanged, with the same cross section and deteriorating road conditions over time. The construction of the road maintenance depots was not included in the economic analysis at appraisal. 5. The following economic benefits for existing traffic were identified and monetized at appraisal: (i) vehicle operating cost (VOC) savings; (ii) time savings, and (iii) accident cost savings. To calculate changes in VOCs, the initial international roughness index (IRI) values were collected from surveys carried out in 2007 by Kazdorproekt with values recalculated annually by the HDM-4 model. The IRI value for the project road cement concrete pavement was assumed to equal 3.5.1 6. Benefits were calculated separately for generated traffic. Anticipated generated traffic was estimated at 20% of existing traffic volume, with benefits per user assumed to be equal to 50% of the benefits of existing users applying the “rule of a half” as standard in economic analysis of transport projects. Road accident savings were estimated by assuming a reduction in accident losses once the Almaty–Tashkent–Termez M36 road is improved. The original economic appraisal was based on a 4-year construction period (2010–2013), with the project opening in 2014, followed by 19 years of economic life.

1 In absence of actual test results, the IRI value for the project road cement concrete pavement was assumed to be

less than 3.0 at opening, as designed. IRI of 3.5 was used to reflect operating conditions of the road during the initial year of operation. IRI of 3.5 gives slightly more conservative value for VOC savings and EIRR.

36 Appendix 11

C. Economic Reevaluation

7. ADB conducted an economic reevaluation of the project at completion to ascertain whether the project remained economically viable. The reevaluation compared “with-project” and “without-project” scenarios, which remain the same as at appraisal, and calculated incremental changes to costs and benefits using HDM. The construction of the road maintenance depots was not included in the economic analysis at completion. 8. Similar to appraisal (i) vehicle operating cost (VOC) savings; (ii) time savings, and (iii) accident cost savings were considered. The project costs and benefits were calculated over a 25-year appraisal period (2009–2033), after which a residual value2—designed to capture the benefits of the project in the post-appraisal period—is considered. The methodology involved a standard incremental discounted analysis of project cost–benefit streams. D. Demand Estimation

9. The demand analysis at appraisal was based on estimates of annual average daily traffic derived from traffic counts taken in 2007 by Kazdorproekt. Traffic was forecast to grow in line with changes in real GDP, where the 2007 study prepared by “Kazdorproekt” foresaw the growth of normal traffic at 4% per year in 2007–2012 and 6% per year from 2012 onwards. 10. The demand analysis for the economic reevaluation is based on additional traffic counts conducted by the executing agency in April 2016. Traffic forecasts have been amended downward to account for the sharp slowdown of GDP growth to 1.0% in 2015 from 4.3% in 2014 based on low prices for oil, the country’s main export. Growth is expected to remain low at 0.7% in 2016, but recover slightly to 1.0% in 2017. Kazakhstan's GDP growth is projected to improve to 3.4% in 2018 because of the resumption of oil production in the Kashagan field and the improvement of the Russian economy. The normal traffic growth rate assumed at reevaluation was 4% per year in 2007–2012 and 6% per year in 2012–2014. Actual traffic count data was available for 2014 and 2015, and subsequently the assumed growth rates were 0.7% in 2016, 1.0% in 2017, and 4% per year thereafter. 11. Estimated traffic flows in 2014 at reevaluation were marginally higher than forecast at appraisal, but thereafter the forecasts at reevaluation are significantly lower (Table A11.1).

Table A11.1: Annual Average Daily Traffic on Project Roads

(number of vehicles)

Year

Kulan–Merke Merke–Blagoveschenka

At Appraisal At Reevaluation At Appraisal At Reevaluation

2014 7,991 8,002 4,026 4,081 2015 8,470 8,217 4,267 4,189 2020 10,305 9,401 6,748 4,793 2025 13,790 11,438 9,031 5,830 2030 18,454 13,915 12,086 7,094 2033 21,979 15,653 14,394 7,980

Source: ADB 2016 estimates.

2 Based on actual contract data supplied by the executing agency the updated salvage value was estimated at 31%

of the initial project costs.

Appendix 11 37

E. Economic Costs

12. A comparison of actual investment costs with those forecast at appraisal is in Table A11.2. 13. The actual civil works project cost was $188.52 million. The civil works cost per kilometer was $2.39 million for the project road, which was upgraded to four-lane dual carriageway standard. The value of the civil works contract at completion was comparable to the estimated amount at appraisal. The total value of the consulting services at completion was 52.76% lower than the estimated amount at appraisal. The decrease in the consulting service costs was caused primarily by overestimation at appraisal.

Table A11.2: Financial Cost

($ million, 2009 prices) Category At appraisal At reevaluation

Road development component

Civil works 184.40 188.52 Consulting services

Construction supervision 6.00 2.84 Detailed design 0.00 0.00

Road maintenance component Road maintenance depots 8.26 8.26

Taxes and duties – – Total base cost 198.66 199.62 Physical contingencies

a 18.44 0.00

Total project costs 217.10 199.62 a Physical contingencies estimated at 10% of the total base cost.

Source: Asian Development Bank; Committee of Roads, Kazakhstan.

14. The economic analysis of the road development component includes the following costs: (i) capital investment (i.e., civil works and construction supervision); and (ii) the difference in operation and maintenance costs between the with-project and without-project scenarios. Costs related to taxes, duties, and financing charges during implementation were excluded. There were no costs to acquire land, as the road was built in the existing right of way. Costs and benefits were converted from financial to economic prices in line with ADB guidelines. 3 The economic analysis was conducted using the world price numeraire. A standard conversion factor for non-tradable goods of 0.94 was applied, the shadow wage rate for skilled labor was 0.95, and the shadow wage rate for unskilled labor was 0.70 based on a previous study in Kazakhstan4 and as applied at appraisal. 15. Economic costs were brought to a 2009 price base year as used at appraisal by application of a relevant price index.5 Unit rates for road maintenance were based on the assumptions used in the economic analysis at appraisal: (i) routine maintenance costs of $1,000/km; and (ii) periodic maintenance in 2020 and 2027 at a unit rate of $5 per square meter.

3 ADB. 1997. Guidelines for the Economic Analysis of Projects. Manila.

4 ADB. 2003. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical

Assistance Grant to the Republic of Kazakhstan for the Rural Area Water Supply and Sanitation Sector Project. Manila.

5 Construction price index data from the statistics committee of the Ministry of National Economy of Kazakhstan.

38 Appendix 11

F. Economic Benefits

16. The benefits considered in the economic reassessment are (i) savings in VOCs, (ii) improvements in travel time, and (iii) reduction in accidents. As the project uses the existing alignment, the calculation of time savings was not based on any reduction in vehicle-km travelled, but rather on expected increases in average speed due to the increased capacity of the four-lane highway after rehabilitation. The calculation of time savings benefits did not include crew costs, because they form part of the VOC calculations. The actual traffic count data for 2014, 2015, and 2016 was considered to include 20% generated traffic as at appraisal. The benefits for existing users were first calculated and then the benefits for generated traffic were assumed to be equal to 50% of the benefits of existing users applying the “rule of a half” as standard in economic analysis of transport projects. 17. Savings in VOCs are calculated for the project and derive from improvements to the surface conditions and roughness on the upgraded sections, relative to the existing substandard sections. Unit rates for VOC/km, which vary with IRI, were calculated by HDM. Average speeds used in the economic analysis were also calculated within the HDM model based on road condition, geometry, and traffic intensity.

18. The economic analysis used hourly values of time for car passengers of $4.04 for work travel and $1.21 for nonwork travel and for bus passengers of $1.39 for work travel and $0.42 for nonwork travel.6 The calculation of savings from reductions in the number of road casualties was updated at reevaluation relative to at appraisal with actual accident records for fatalities and injuries, since the upgrading of the road to a 4-lane dual carriageway had significantly reduced the accident rate. Accidents were assumed to cost $412,800 for a fatal casualty and $51,600 for personal injury casualties.7 G. Results of Economic Reevaluation

19. The results of the economic reevaluation covering the full project period are in Table A11.3. The economic indicators provided are (i) net present value (NPV), (ii) benefit–cost ratio (BCR), and (iii) economic internal rate of return (EIRR). The principal reasons for the differences in the economic indicators between the appraisal and completion stages are (i) reduction in traffic growth rate at appraisal due to the unforeseen reduction in GDP growth forecasts, and (ii) increased accident benefits based on actual accident data since opening. The former negatively affected economic efficiency, whereas the latter had the opposite effect.

Table A11.3: Project Economic Indicators

Section Net Present Value

(2009 $ million, world price numeraire) Benefit–Cost Ratio

(ratio) EIRR (%)

At appraisal 91.19 1.67:1 16.4 At completion 26.49 1.23:1 14.8 EIRR = economic internal rate of return. Source: Asian Development Bank estimates, project preparatory technical assistance consultant’s report.

20. Sensitivity tests and calculations of switching values were carried out to determine the effect of variations in key input parameters on the key economic indicators. Table A11.4 shows the results of the sensitivity analysis. Switching values of –90% in respect of vehicle operating

6 The values of time are based on the ADB 2008 due diligence study review of economic analysis for CAREC

transport corridor I (Zhambyl oblast section) updated in line with GDP growth in 2007–2008. 7 The values of accident casualties are based on the ADB 2007 feasibility study for the Western PRC–Western

Europe international transit corridor updated in line with GDP growth in 2007–2008.

Appendix 11 39

costs, –39% with respect to value of time (the main source of benefits), and –86% in respect of the value of accidents were calculated, showing that the project remains economically viable across various scenarios.

Table A11.4: Result of the Sensitivity Analysis

Scenario Net Present Value

(2009 $ million, world price numeraire) EIRR (%)

Switching Value (%)

Base 26.49 14.8 N/A Vehicle operating costs –25% 19.21 14.0 –90 Value of time –25% 9.74 13.1 –39 Value of accidents –25% 18.84 14.0 –86 EIRR = economic internal rate of return, N/A = not applicable. Source: Asian Development Bank estimates.

21. In summary, the economic reevaluation was undertaken in line with the ADB guidance. The project return exceeds the 12% threshold, and the project remains economically viable.

Table A11.5: Detailed Results of the Economic Analysis ($ million, 2009 prices, world price numeraire, undiscounted)

Capital Maintenance Cost VOC Time Accident Net

Year Costs With Without Reduction Savings Savings Savings Benefits

2009 – 0.09 0.09 0.00 0.00 0.00 0.00 0.00 2010 22.85 0.08 0.10 (0.02) 0.00 0.00 0.00 (22.87) 2011 45.37 0.08 0.11 (0.03) 0.64 0.45 0.00 (44.31) 2012 70.89 0.08 0.11 (0.03) 1.46 1.13 0.00 (68.33) 2013 17.06 0.08 0.12 (0.04) 2.52 2.12 0.00 (12.46) 2014 – 0.08 0.12 (0.04) 6.29 12.14 5.82 24.21 2015 – 0.08 0.12 (0.04) 6.15 13.23 5.97 25.31 2016 – 0.08 0.12 (0.04) 6.79 14.20 6.01 26.97 2017 – 0.08 0.11 (0.04) 7.85 15.52 6.07 29.41 2018 – 0.08 0.11 (0.03) 9.28 17.47 6.32 33.04 2019 – 0.08 0.10 (0.03) 10.91 19.69 6.57 37.15 2020 – 0.08 3.51 (3.43) 12.73 22.15 6.83 38.29 2021 – 0.08 0.08 0.00 2.24 11.12 7.11 20.47 2022 – 0.08 0.08 0.00 2.86 11.93 7.39 22.18 2023 – 0.08 0.08 0.00 3.58 12.87 7.69 24.13 2024 – 0.08 0.20 (0.12) 4.43 13.99 7.99 26.29 2025 – 0.08 0.32 (0.24) 5.39 15.29 8.31 28.75 2026 – 0.08 0.44 (0.36) 6.48 16.79 8.64 31.56 2027 – 0.08 3.51 (3.43) 7.71 18.50 8.99 31.78 2028 – 0.08 0.08 0.00 (1.41) 13.06 9.35 21.00 2029 – 0.08 0.08 0.00 (0.99) 13.65 9.72 22.39 2030 – 0.08 0.08 0.00 (0.50) 14.30 10.11 23.91 2031 – 0.08 0.20 (0.12) 0.09 15.02 10.52 25.51 2032 – 0.08 0.32 (0.24) 0.76 15.83 10.94 27.29 2033 (48.41) 0.08 0.44 (0.36) 1.50 16.75 11.38 77.67

EIRR (%) = 14.8 NPV (Discount Rate: 12%) = 26.49

EIRR = economic internal rate of return, NPV = net present value, VOC = vehicle operating cost. Source: Asian Development Bank estimates.

H. Financial Evaluation of Road Maintenance Sustainability

22. Road sector expenditures (construction, rehabilitation and maintenance) on public roads depend on the government budget and during 1990s and 2000s has been underfunded by international norms. During last several years, funding was steadily increasing (Table A11.6).

40 Appendix 11

Table A11.6: Financing of road sector (2013–2015) (T million)

Year Construction and Rehabilitation

Periodic Maintenance

Routine Maintenance

Total Road Expenditure

2013 200,260 19,000 8,000 227,260 2014 231,157 19,214 15,502 265,873 2015 303,846 25,079 14,114 343,039

Source: Committee of Roads, MID.

23. Road sector finding, expressed as a percentage of the gross domestic product has accordingly increased from 0.64% to 0.84% (Table A11.7).

Table A11.7: Financing of road sector (2013–2015) as percentage of GDP (T billion)

Year Total Road Expenditure GDP Total Road Expenditure, % of GDP

2013 227.26 35,999.03 0.63 2014 265.87 39,675.83 0.67 2015 343.04 40,884.13 0.84

GDP = gross domestic product. Source: Committee of Statistics, Ministry of National Economy.

Appendix 12 41

PROJECT OVERALL ASSESSMENT

Criterion Weight

(%) Assessment Scorea Weighted Rating

Relevance 25 Relevant 2 0.50 Effectiveness 25 Effective 2 0.50 Efficiency 25 Efficient 2 0.50 Sustainability 25 Likely to be sustainable 2 0.50 Overall Assessment

b Successful 2.00

a Rating range: 3 = highly relevant/effective/efficient/most likely; 2 = relevant/effective/efficient/likely; 1 = less than relevant/effective/efficient/less likely; 0 = irrelevant/ineffective/inefficient/unlikely.

b Highly successful: overall weighted average is ≥ 2.7; successful: overall weighted average is ≥1.6 and < 2.7; less

than successful: overall weighted average is ≥ 0.8 and < 1.6; unsuccessful: overall weighted average is < 0.8. Sources: ADB. 2006. Guidelines for Preparing Performance Evaluation Reports for Public Sector Operations. Manila; ADB. 2013. Amendments to the IED Guidelines for Preparing Performance Evaluation Reports for Public Sector Operations. Manila.

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